Consider a drill press containing three drill bits. The current policy (called individual replacement) is to replace a drill bit when it fails. The firm is considering changing to a block replacement...

Consider a drill press containing three drill bits. The current policy (called individual replacement) is to replace a drill bit when it fails. The firm is considering changing to a block replacement policy in which all three drill bits are replaced whenever a single drill bit fails.


Each time the drill press is shut down, the cost is $100. A drill bit costs $50, and the variable cost of replacing a drill bit is $10. Assume that the time to replace a drill bit is negligible. Also, assume that the time until failure for a drill bit follows an exponential distribution with a mean of 100 hours. This can be modeled in @RISK with the formula =RISKEXPON(100). Determine which replacement policy (block or individual replacement) should be implemented.