Modeling a multi-attribute utility newsvendor with partial backlogging

Traditional newsvendor models usually focus on single profit maximization or cost minimization approaches. However, making a monetary estimate of the consequences of lost sales as a result of shortages is often a difficult task for many practitioners. Besides, there is still a lack of an explicit account of decision-making judgments on the multiple consequences of making decisions with regard to order quantities. In order to deal with this problem, this paper presents a multi-attribute utility model for the newsvendor problem with regard to profit, the impacts of service level on corporate image and on customers’ goodwill, and the impact on the environment arising from the disposal of unsold products. Demand is partially backlogged according to a decreasing exponential function of the waiting time. The fundamental principles and limitations related to the application of the model built are also discussed.