Abstract.

This paper aims to develop a replacement model of city bus vehicles operated in Bandung City. This study is driven from real cases encountered by the Damri Company in the efforts to improve services to the public. The replacement model propounds two policy alternatives: First, to maintain or keep the vehicles, and second is to replace them with new ones taking into account operating costs, revenue, salvage value, and acquisition cost of a new vehicle. A deterministic dynamic programming approach is used to solve the model. The optimization process was heuristically executed using empirical data of Perum Damri. The output of the model is to determine the replacement schedule and the best policy if the vehicle has passed the economic life. Based on the results, the technical life of the bus is approximately 20 years old, while the economic life is an average of 9 (nine) years. It means that after the bus is operated for 9 (nine) years, managers should consider the policy of rejuvenation.