Computation of approximate optimal policies in a partially observed inventory model with rain checks

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This article presents a new approach for the solution of inventory problems under the assumption that the inventory is not fully observed. This happens for example in cases of incorrect record-keeping or other discrepancies due to unforeseen circumstances. The authors begin with a broad and extensive overview of the relevant literature, concentrating on the rain check model which forms the basis of the proposed methodology. In the second section the authors present their model which consists of an inventory manager who does not know the inventory level when this is positive. The proposed algorithm uses truncated Chebyshev polynomials as the functional basis along with a smart discretization to ensure the calculations are carried out efficiently. The detailed steps of the algorithm, such as initialization, iteration and discretization are presented in the third section. The final two sections present the results of numerical experimentation, a solved example and a comparison with alternative methods.



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