An approach is presented whereby the design and replacement of finite life equipment may be approached in a rational manner. Considering manufacturing operations large enough to give a sufficient component population, statistical methods are used to predict failure distributions and attendant cash flows. Cash flows are minimized to yield optimum replacement schedules. Component design is optimized by relating component failure probability to initial investment. By considering component replacement according to the above described optimum replacement schedules, optimum initial investment is determined. The approach is illustrated by the problem of the design and retirement of furnace tubes.

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