Tuesday, August 12, 2008

Inventory control

Inventory control is among the most important topics in management science. Since the development of the classical Economic Order Quantity formula in 1913 , a lot of celebrated results, such as the base stock
policy, have been obtained. One of the critical assumptions in this vast inventory literature has been that
the inventory level at any given time is fully observed. However, in reality, it is often not the case, and the
inventory level is only partially observed. In such cases, most of the well-known inventory policies such as the base stock policy are not even admissible, let alone optimal.
There are a number of reasons for partial observability of inventory levels. Demand may be incorrectly observed or observed with some delays. Inventory may be misplaced or stolen.
Even though partial observations in inventory systems are very common and serious, there has not been
much research activity in this area.

Stock-outs lead to loss of a sale or damage the company's goodwill. Most companies pay utmost attention
to an item when its inventory is non-positive. One way is for the employees to walk around the shelves to
see if the item is stocked out.

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