Mises Daily

A
A
Home | Library | Repair, Replacement, and the Division of Labor

Repair, Replacement, and the Division of Labor

February 28, 2014

Tags The EntrepreneurFree Markets

As Ludwig von Mises said, human action is “purposeful behavior.” Machines amplify our actions and are employed purposefully, to satisfy a want. When a machine breaks down, the need it was fulfilling persists. This is the driving force behind every repair. Therefore, every troubleshooting project has the following elements: a need, a broken system, and a finite supply of repair resources. That basic setup leads to the following options:

1. Repair the system.  2. Replace the system.

In all endeavors, we want to fulfill our desires in the most efficient way possible: the resources we save can be put to other uses. The need a broken machine was serving is the most important consideration: if it can be met at a lower cost some other way, fixing becomes unnecessary.

The Troubleshooter as Manufacturer

Adam Smith noted that the “greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.”

Now imagine all the pieces of an automobile, strewn across the floor of a garage. Your task is to assemble these parts into a working car. To make things interesting, we’ll have a contest: if you can do it faster than the manufacturer, you get to keep the car. Go!

Not interested? This thought experiment is useful because it highlights one of the major differences between “repairing” and “replacing.” You’ll recall that there are two steps for making any repair:

1. Finding the problem.  2. Fixing it.

The second step, fixing something, is often a recreation of the manufacturing process. Getting a machine back to working, you tread the same steps that were done at the factory. The troubleshooter’s role as a de facto manufacturer becomes clearer when you think about how many times a machine can be re-built over its lifetime.

The problem is, the manufacturer will always be better at putting together machines. That’s the whole point of their existence: to efficiently turn raw materials into finished products! To that end, they have many advantages over the jack-of-all-trades you become when troubleshooting: wherever the problem lies within a machine, you must go there and be prepared to fix it. Contrast that with the highly specialized labor used in manufacturing. In general, the troubleshooter must know much more about a machine than an individual worker in an assembly line; however, that knowledge will be shallow compared to the deep expertise of a worker who performs the same operation, day in and day out, on a specific part of a machine.

To add to the manufacturer’s advantage, fixing something often requires disassembly of the machine! That means first reversing what was done at the factory, and then replicating the manufacturing process from that point. Piling on top of that, you need to first find out where the problem lies. This is a step the manufacturer doesn’t have to take. Of course, manufacturer’s also have to find and overcome problems with their products, but they try to do this up-front in the prototyping and testing phase. Once a product’s design is set, manufacturing is about efficiently replicating that model, over and over.

So what? Well, the difference in efficiency between the troubleshooter and the manufacturer looms large in the “repair versus replace” question. The only hope for troubleshooting to be economically efficient is to use a small fraction of the labor and parts that went into the original machine. Because the cost of replacement is the standard to beat, the basic equation for an efficient troubleshooting exercise is:

Cost of Problem Discovery + Cost to Fix < Cost of Equivalent Replacement

There are many nuances, but this basic accounting is the starting point for any discussion. Finally, note that this is a forward-looking equation: it doesn’t matter how much you’ve previously spent on a machine (aka, “sunk costs”). I’m often surprised at how brutal depreciation can be to a machine’s value! You can’t be emotionally attached to what you spent on it when it was new: the only relevant consideration is the current replacement cost.

Repair

Repairing has two separate costs: discovering the problem and executing the fix (includes parts and labor). The first step, figuring out what is wrong, can be highly variable. For low-value items, it’s entirely possible to exceed the replacement cost solely in this phase. Now is a good time to talk about risk, because repair typically involves many more unknowns than replacing. In addition to the risk, you waste time just figuring out what’s wrong, executing a fix has its own hazards. Whenever you take something apart, there’s always a chance you won’t be able to put it back together again. Certain repair operations may require a very long series of steps to be implemented perfectly. It’s also easy to waste money on parts: I’ve botched repair jobs and been left with a pile of unusable components (many times, even if you can return the parts, you must pay a restocking fee). I’ve also installed replacement parts incorrectly and destroyed them in the process. Oops, there goes money down the drain!

Repair involves many elements of uncertainty, which are similar to the risks faced by entrepreneurs. Entrepreneurs take risks with capital and their time, in hopes of turning a profit. Troubleshooters make similar bets with their repairs. Moreover, the knowledge gained from making a fix can be re-used later on: you’ll discover shortcuts and tricks that will speed future repairs. Lastly, it might not have economic value, but there’s also the soul-stirring satisfaction of knowing you can solve your own problems!

Replace

The argument for replacement revolves around certainty. As noted, repair can involve many risks: the time needed to discover the problem can be highly variable, and then the repair must also be executed correctly. Contrast that with replacement: by purchasing an already working system, you can bypass these concerns. To guarantee operation within a certain time frame, swapping may be your only option, given the uncertainties associated with repair.

However, replacement isn’t all sunshine, unicorns, and rainbows. There are risks and downsides here too. For example, a new machine may require a lengthy break-in period to become fully functional. Extensive configuration or tuning might be needed to integrate a replacement into your operations. The other tricky thing is compatibility: the manufacturer may claim that a new machine will run “just like the old one,” but I’ve been bit enough times to be skeptical of such claims! Machines can be like wine vintages: just because it’s newer doesn’t mean it’s better. Mass-produced machines are designed to appeal to the masses: while this is great for the manufacturer, new models can be a step forward or backward when it comes to your specific purpose.

The repair or replace dilemma is framed by the need that persists after a machine breaks down. This unmet necessity is primary and your resources are limited, so be sure to compare the two paths before making a decision. For fixing to be competitive, the cause must be quickly identified and the pitfalls associated with repair deftly avoided. On the other hand, finding a suitable replacement has its own costs and perils. The desire to save resources drives the search for the optimal solution; this goal-directed action, done in the face of uncertainty, is why the troubleshooter and the entrepreneur are kindred spirits.

This article was adapted from “Repair or Replace” at The Art of Troubleshooting.


Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

Follow Mises Institute