Marginal cost analysis of single-item maintenance policies with several decision variables

Abstract

The marginal cost approach for the analysis of repair/replacement models was introduced by Berg in 1980 and has since been applied to many maintenance policies of various complexity. All models hitherto analysed in the literature by the marginal cost approach have one single decision variable only, this being, typically, the age of the current item at the time of ordering or replacement. This paper is concerned with the extension of the marginal cost technique to maintenance policies with several decision variables. After addressing the general framework appropriate for the multi‐parameter case, we exemplify the workings of the technique by analysing a two‐variable maintenance model involving replacement and minimal repair. We demonstrate that the marginal cost approach is an attractive and intuitively appealing technique also for models with several decision variables. Just as in the single‐parameter situation, the approach is amenable to economic interpretation, a welcome feature for users of maintenance models with a prime interest in its economic (rather than its mathematical) aspects. As an added bonus of the marginal cost approach, in our example, some otherwise necessary tools from the theory of stochastic processes are dispensable.