A multi-attribute utility theory approach to ordering policy for perishable items

Saeed Poormoaied (Corresponding author), Zümbül Atan (Corresponding author)

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Most retailers aim at operating with low cost and low stock-out probability. In this paper, we consider a retailer who manages the inventory of a perishable product using a continuous review (Q,r) policy with these two performance measures. We rely on the multi-attribute utility theory to combine these two measures into a single weighted utility function. We incorporate the decision maker's risk-aversion/risk-seeking attitude. We obtain the optimal policy parameters by maximizing the weighted utility function. We conduct a numerical study to demonstrate the sensitivity of the optimal policy parameters to the risk-aversion/risk-seeking attitude of the decision maker and weights of evaluation measures. Our results reveal that the risk behavior does not have a significant effect on policy parameters while the weights of evaluation measures are influential. We compare our multi-attribute utility model with three well-known alternative (Q,r) policies. In the first one, we study the expected cost as a single performance measure. In the second one, we consider a service level constraint and in the third one, we use CVaR measure. We conclude that our multi-attribute approach has multiple favorable attributes compared to its widely used alternatives.

Original languageEnglish
Article number107582
Number of pages16
JournalInternational Journal of Production Economics
Volume225
Early online date2020
DOIs
Publication statusE-pub ahead of print - 2020

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Keywords

  • Inventory control policy
  • Multi-attribute utility theory
  • Perishable items
  • Power-additive utility function

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