Inventory is raw materials, parts, work-in-process, and finished goods held in the supply chain. Managing inventory well can reduce costs and increase profits through sales growth and cost reductions. Companies must consider factors like demand, costs of holding and ordering inventory, price discounts, and safety stock when determining optimal inventory levels. The economic order quantity (EOQ) model balances ordering and holding costs to determine the most cost-effective order size, while reorder points and safety stock help avoid stockouts by ensuring sufficient inventory levels.