The newsvendor problem with multiple inputs and environment sensitive customers

Abstract

Motivated by the global aim and trends to reduce carbon emissions, in this thesis we investigate the effects of carbon sensitivity on the operations management in the context of inventory management. We assume the newsvendor setting under multiple substitutable inputs with varying carbon emission levels, and carbon sensitive random demand. The Cobb-Douglas production function is used which provides a link between the production quantity and the inputs. Our goal is to determine the optimal production quantity under two different supply chain models. In the decentralized model, we consider an independent manufacturer and a retailer, where the retailer orders Q units to the manufacturer and the manufacturer produces these items in such a way that he minimizes his production cost. In the integrated production or the centralized model, the manufacturer and the retailer act as a centralized system and the aim is to find the production quantity that maximizes the expected profit of the integrated system. Exact expressions for the expected profits of both models are derived and analytical results regarding the optimal solutions are presented. Numerical results are also provided to illustrate the effects of the system parameters and carbon sensitivity levels.