Parallel asset replacement problem under economies of scale with multiple challengers

Abstract

The parallel replacement problem under economies of scale (PRES) determines minimum cost replacement schedules for each individual asset in a group of assets that operate in parallel. A fixed cost is incurred in any period in which an asset is purchased. These fixed costs induce economies of scale, making replacement schedules for these assets economically interdependent. We prove that PRES is NP-hard and present integer programming formulations for four variants of the problem in which multiple asset types, or challengers, are available for replacement (MPRES). We then derive valid inequalities for PRES and MPRES, which are similar in structure to flow cover inequalities developed in the context of fixed charge network problems. Experiments illustrate that the inequalities are effective in improving the integrality gap of MPRES instances.