They often sell their manufactured goods to distributors that keep them on hand so they can ship goods to retailers. Sometimes they ship unfinished goods to other companies that use them to make more complex products. Fancy computer systems are supposed to ensure that no one ends up with too much inventory that is costly to store. Retailers stop ordering. Distributors cancel orders from the factory.
Producers idle plants and lay off workers.
That's why the real story behind the numbers showing an economic downturn can be found in warehouses of companies such as Agere and eToys. Bloated inventories of everything from telecom equipment to toys without tots to love them are part of the reason why the economy is so fragile. If that inventory doesn't move soon, a ripple of economic weakness could become a tidal wave. Another reduction is likely when its Federal Open Markets Committee meets again March 20. Companies have come a long way from the guessing game they used to play to figure out how many widgets to make.