How Do Businesses Manage Inventory?

Last Updated Aug 25 2025

Orfula Team | Feb 23, 2025

If a business doesn’t manage inventory effectively, its chances of long-term success are slim. In fact, poor inventory management is one of the fastest ways a product-based business can fail. Whether you run a warehouse, retail shop, or eCommerce store, knowing how to manage inventory is essential to keep products flowing, customers satisfied, and costs under control. By the end of this article, you’ll understand exactly why it matters and the tools that make it easier.

What is inventory management?

At its core, inventory management is the process of tracking and controlling raw materials, work-in-progress items, and finished goods across warehouses or storage facilities. Good inventory management ensures businesses always know what’s in stock, when to reorder, and how much to order.

For example, if demand spikes and stock is running low, businesses need immediate visibility to restock before items sell out. On the other hand, if too much inventory is sitting on shelves, money is wasted on storage costs and unsold goods. This is where understanding how to manage inventory properly makes a difference.

One widely used technique is the Economic Order Quantity (EOQ) formula, which helps determine the optimal order size to minimize both ordering and holding costs. Automated software often incorporates EOQ, giving businesses a more efficient way to manage inventory without endless manual calculations.

And it’s not just about numbers. Strong inventory management directly impacts customer experience. Have you ever bought something online only to get an email later saying it’s out of stock? That happens when a business fails to manage inventory in real time. A solid system prevents those errors, keeps customers happy, and builds trust.

How important is inventory management?

The importance of inventory management can’t be overstated. Businesses that don’t prioritize it risk losing millions—or even going bankrupt. A well-known example is Toys “R” Us. Despite once being a retail giant, they struggled to manage inventory properly. During peak seasons, they often ran out of popular toys while holding too much of the items nobody wanted.

Meanwhile, competitors like Amazon leveraged advanced systems to show real-time stock levels, ship faster, and keep customers coming back. Toys “R” Us couldn’t adapt, and their poor inventory management played a key role in their decline and eventual bankruptcy in 2017.

This example highlights why learning how to manage inventory is vital. The right practices don’t just save money—they ensure businesses stay competitive in an environment where customer expectations are higher than ever.

Inventory Management software

So what’s the solution? For most businesses, the answer is inventory management software. Instead of relying on outdated spreadsheets or manual tracking, a modern system helps you manage inventory automatically with real-time data.

Here’s what quality inventory management software should provide:

• Continuous tracking of stock levels.
• Instant alerts for overstocking or understocking.
• Real-time synchronization across sales channels.
• Tools to mark items as sold out or back in stock automatically.

By using these features, businesses reduce waste, improve efficiency, and avoid the common pitfalls of poor stock control. Most importantly, software makes learning how to manage inventory far easier by automating repetitive tasks and giving decision-makers accurate data.

Conclusion

Strong inventory management is the backbone of a profitable, scalable business. Without it, companies risk overspending, losing customers, and falling behind competitors. But with the right tools, you can manage inventory effectively, streamline supply chains, and protect long-term profitability.

At Orfula, our inventory management solution combines order channel integration with flexible product item tracking—whether it’s raw materials or finished goods. By adopting modern software, you’ll no longer wonder how to manage inventory; you’ll have a system that does it for you while helping your business grow.