Market volatility and global disruption are reshaping how companies manage inventory. Agility now depends on technology that delivers real-time visibility across the entire supply chain.
Bruno J. Navarro
Senior Editorial Strategist, Finance
Workday
Inventory management is the engine that keeps supply chains moving, making sure the right products reach the right place at the right time—all without tying up capital in excess stock or leaving customers waiting when shortages occur.
But striking that balance is increasingly difficult as supply chains grow more global and complex. EY reports in their 2025 Supply Chain Report that a staggering 97% of organizations reported challenges with tracking supply chain metrics, and 84% spend more time on internal operations than serving customer service needs.
Holistic inventory management powered by modern, intelligent technology gives organizations the agility to overcome these challenges and keep goods moving seamlessly from suppliers to shelves.
97% of organizations report challenges with tracking supply chain metrics.
Report
Inventory management is the discipline of tracking and controlling the movement of goods across the supply chain, from raw materials on order to finished products ready for customers. Done well, it provides the visibility needed to run daily operations efficiently and scale as needed.
In practice, inventory management has two objectives: meeting customer demand without delay and keeping costs under control. To achieve this balance, three principles are essential:
When these fundamentals are in place, companies can lower costs, reduce the risk of stockouts, strengthen forecasting, and raise customer satisfaction—all of which create a stronger foundation for sustainable growth.
Organizations can adopt a range of inventory management models, each designed to fit different demand patterns, product lifecycles, and degrees of uncertainty. Choosing the right approach not only aligns inventory practices with broader business objectives but also strengthens resilience across the supply chain.
The Economic Order Quantity model answers a fundamental supply chain question: What’s the optimal amount to order at one time to minimize total costs? By striking the right balance between ordering and holding costs, EOQ helps companies reduce waste and keep inventory investments lean.
EOQ works best for products with stable demand and predictable lead times, such as raw materials or standard components used consistently in production. In practice, organizations apply the model by:
Example: A beverage company might find that ordering 50,000 glass bottles per shipment minimizes costs—large enough to reduce the frequency of purchase orders but not so large that storage fees or risk of breakage eat into margins. By calibrating order sizes this way, the company keeps production flowing smoothly while avoiding unnecessary capital tied up in excess inventory.
ABC analysis recognizes not all inventory items carry the same weight. It segments products into three categories—A, B, and C—based on their relative contribution to overall value. A-items are the small group of high-value products that drive the majority of costs or revenue, C-items are low in value but often make up the bulk of stock, and B-items fall in the middle.
This model is especially effective for companies managing large, diverse catalogs where equal oversight of every item isn’t feasible. It can be implemented by:
Example: A retailer may discover that just 15% of its SKUs account for 70% of revenue. By concentrating tighter controls and frequent reviews on these A-items, they can ensure their most valuable products remain in stock while reducing time and resources spent on less critical items.
Just-in-Time inventory management reduces or eliminates excess stock by aligning deliveries directly with production or customer demand. By minimizing storage needs and waste, JIT helps companies to operate more efficiently, but it requires dependable suppliers, real-time visibility, and stable demand conditions to succeed.
Organizations typically implement JIT by:
Example: An automotive manufacturer may coordinate with tire suppliers to deliver sets of tires daily, timed precisely with vehicle assembly schedules. This keeps production moving without tying up cash or space in storing thousands of tires, but it also means disruption in the supply chain could immediately halt production.
Because demand and supply are rarely perfectly predictable, safety stock provides a cushion against stockouts while reorder points define the threshold for placing new orders. Together, these practices protect businesses from disruption and are especially critical in industries with fluctuating demand or long lead times, such as pharmaceuticals, retail, or consumer goods.
Companies typically apply this model by:
Example: A clothing retailer heading into the holiday season might keep an extra buffer of its best-selling winter jackets on hand. By setting reorder points tied to real-time sales data, the company can reorder before shelves run empty, ensuring it captures peak demand without overstocking once the season ends.
Visibility challenges can’t be solved with process tweaks alone; they demand digital platforms that provide real-time data and AI-driven insights to close gaps and keep inventory moving.
Even with proven models in place, inventory management execution is rarely straightforward. Organizations face challenges that can undermine even the most carefully designed strategies.
Demand variability and forecasting errors remain one of the biggest hurdles. Shifts in consumer preferences, seasonal peaks, or sudden market changes can quickly render forecasts inaccurate, leading to costly overstocking or stockouts. The ripple effects are amplified by supply chain disruptions—from port delays and labor strikes to geopolitical tensions—that can halt the steady flow of goods.
Striking the balance between excess inventory and shortages is another constant tension. Overstocking ties up working capital and raises storage costs, while stockouts erode customer trust and revenue. Adding to the pressure are rising operational expenses, with labor, transportation, and warehouse space becoming more expensive and harder to optimize.
Adding to these operational pressures, an EY survey found that limited visibility and transparency across supply chain functions is the single biggest challenge for organizations today. Notably, the same survey shows that modernizing supply chains through technology is also the top priority, underscoring how solving these challenges and advancing supply chain performance now go hand in hand.
Visibility challenges can’t be solved with process tweaks alone; they demand digital platforms that provide real-time data and AI-driven insights to close gaps and keep inventory moving.
Addressing the challenges of inventory management requires more than adopting the right execution model. Companies that succeed tend to combine multiple strategies and continuous improvement efforts that keep operations resilient. These are some of the most crucial practices to prioritize.
AI-driven models and advanced analytics now help organizations make nuanced, intelligent forecasts that account for seasonality, promotional cycles, and external factors like economic shifts or weather patterns. By drawing on real-time data, companies can better anticipate demand fluctuations and align stock levels more closely with market needs.
Optimization methods such as multi-echelon inventory management help businesses balance stock across the entire network, not just at individual locations. Approaches like dynamic safety stock, which adjusts buffer levels based on variability, further reduce the risk of both overstocking and stockouts. Together, they create a more flexible system that adapts as conditions change.
Strong supplier relationships are central to effective inventory management. When lead times, order sizes, and replenishment schedules are aligned, companies can avoid costly mismatches between supply and demand. Modern visibility tools and shared data platforms extend that collaboration by giving both buyers and suppliers a real-time view of inventory levels and upcoming needs. With everyone working from the same information, it becomes easier to anticipate shortages and keep goods moving where they’re needed.
Concentrating on a single supplier or region may keep costs low, but it also creates a single point of failure. Natural disasters, political instability, or logistics bottlenecks can halt production overnight if there’s no fallback option. Diversifying suppliers, maintaining reserves of critical items, and using scenario planning tools to evaluate all possible outcomes give companies the flexibility to shift quickly when disruptions occur.
Though these strategies can increase short-term costs, they build the resilience needed to keep operations running and customer commitments met when global or regional events shake the supply chain.
Inventory practices can’t be set once and left alone; they need to evolve as conditions shift. Frameworks such as Plan–Do–Check–Act (PDCA) help organizations test new approaches, measure results, and embed improvements into daily operations. Just as critical is preparing people for change. The best systems and technologies deliver little value if teams don’t adopt them, which makes training and change management essential for turning new processes into lasting gains.
Inventory management delivers the most value when it’s tied directly to the organization’s wider objectives. Integrated into supply chain management, it becomes more than a cost-control measure—it supports profitability, strengthens customer service, and advances priorities like sustainability.
Aligning inventory decisions with broader business goals turns ordering, buffering, and replenishment into levers for efficiency and competitive strength.
Inventory management strategies succeed or fail on the quality of the systems that support them.
Inventory management strategies succeed or fail on the quality of the systems that support them. Modern technology solutions create the intelligence and agility to respond to change in real time.
Inventory management systems (IMS) provide visibility into stock levels, but when they’re integrated into ERP platforms, they connect those insights with other key areas like financial planning, procurement, and supplier management. That integration turns inventory data into a decision-making asset: Leaders can see how order fulfillment quantities affect cash flow, production schedules, and even contract analysis data all in one view.
Barcode scanning was once the standard, but today, RFID and IoT sensors give companies continuous signals on inventory location and condition. Automated tracking tools feed live data into planning systems that help reduce shrinkage and cut manual labor. Instead of relying on periodic counts, companies can orchestrate replenishment based on actual consumption patterns.
Machine learning goes further by making forecasts adaptive. Algorithms analyze historical demand alongside external signals—such as weather, promotions, or macroeconomic data—to predict variability more accurately. The output isn’t just a better forecast but actionable parameters like dynamic reorder points or safety stock levels that shift as conditions evolve.
With supply chains spanning global regions and partners, cloud platforms offer more than convenience—they provide a unified view of inventory across multiple nodes. Real-time dashboards highlight key insights like where stock is in transit, where bottlenecks are forming, and where demand is changing faster than expected. Real-time visibility turns disruption into something organizations can manage proactively.
AI brings intelligence to the financial side of managing inventory. By scanning supplier contracts and spend data, AI tools can identify price discrepancies, spot compliance issues, and flag patterns that signal risk, like repeated late deliveries or hidden surcharges. These kinds of insights connect procurement decisions directly to inventory strategy, giving companies clearer control over both availability and cost, and protecting their bottom line.
Inventory management is no longer just operational, but a competitive advantage and core driver of long-term growth.
Inventory management has always been about balance, but today the stakes are higher. Global disruptions, rising costs, and shifting demand mean organizations need more than traditional inventory tracking; they need connected systems and strategies that deliver visibility and agility.
The right mix of execution models, resilient processes, and modern technology turns inventory into a strategic asset. With advanced forecasting, smarter optimization, and stronger supplier collaboration, organizations can build optimized supply chains that adapt quickly to change.
Done well, inventory management is no longer just operational, but a source of competitive strength and a core driver of long-term growth.
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