Dependent demand and independent demand are two different types of demand that are used in supply chain management to manage inventory and production. In other words, Dependent demand and independent demand are two types of demand that are important concepts in supply chain management. Understanding the difference between these two types of demand is crucial for effective inventory management and production planning.
What is Dependent Demand?
Dependent demand refers to the demand for components or parts required to manufacture finished goods. Dependent demand is driven by the production schedule and the demand for the finished goods. Dependent demand is calculated using a bill of materials (BOM) for the finished product, which lists all the components required to manufacture the product. Examples of dependent demand include raw materials, components, and subassemblies required for manufacturing finished goods.
In managing dependent demand, a company needs to focus on production planning to ensure that the right amount of inventory is available at the right time to meet production schedules. Dependent demand is usually managed using Material Requirements Planning (MRP) systems that use the BOM to calculate the quantity and timing of each component required for production. MRP systems can also be used to calculate the lead time for each component and ensure that the inventory is available when needed.
What is Independent Demand?
Independent demand refers to the demand for finished goods or products that are sold directly to the end consumer. Independent demand is not influenced by any other product or demand, and it can be forecasted using various forecasting techniques, such as time series analysis, regression analysis, and trend analysis. Examples of independent demand include smartphones, clothing, and food products. Independent demand is generally more volatile than dependent demand, as it is influenced by various external factors, such as consumer behavior, trends, and economic conditions.
In managing independent demand, a company needs to focus on forecasting demand accurately to ensure that the right amount of inventory is available to meet customer demand. Overstocking can lead to excess inventory and associated costs, while understocking can lead to lost sales and dissatisfied customers. To manage inventory levels effectively, companies use various inventory management techniques such as reorder point, economic order quantity, and safety stock.
Key Difference
The key differences between dependent and independent demand include:
- Description: Independent demand is the demand for a finished product or service that is not influenced by the demand for other products or services. Dependent demand, on the other hand, is the demand for a component or raw material that is directly linked to the demand for a finished product.
- Planning: Independent demand is usually forecasted using historical data, market trends, and other statistical methods to estimate demand for a given product or service. Dependent demand, on the other hand, is calculated based on the bill of materials (BOM) or the recipe for the finished product.
- Inventory management: Since independent demand is not linked to any other product or service, it is managed separately from other products. Dependent demand, on the other hand, is managed as part of the inventory of the finished product.
- Variability: Independent demand is generally more variable than dependent demand because it is influenced by external factors such as market trends, consumer preferences, and economic conditions. Dependent demand, on the other hand, is more stable since it is based on the demand for a finished product.
- Forecasting accuracy: Independent demand is generally more difficult to forecast accurately due to the variability mentioned above. Dependent demand, on the other hand, is more predictable since it is based on the known demand for a finished product.
- Supply chain management: The management of independent demand and dependent demand is different. Independent demand is managed using a traditional supply chain approach, while dependent demand is managed using a just-in-time (JIT) or materials requirements planning (MRP) approach.
- Examples. Independent demand is demand for a finished product such as bicycle, computer, television, pizza, car or phone. Dependent demand, on the other hand, is demand for component parts or subassemblies. For example microchips in the computer, wheels on bicycle, the cheese on the pizza, and switch for television or mouthpiece for phone.
Also Read: Difference Between Dependent And Independent Variable
Dependent Vs Independent Demand in Tabular Form
| Basis of Comparison | Dependent Demand | Independent Demand |
| Definition | An inventory of an item is categorized independent demand when the demand for such an item is not dependent upon the demand for another item. | An inventory of an item is categorized as dependent when demand for such an item is dependent upon another item. |
| Categorization | Raw materials and component inventories are dependent upon the demand for finished goods and hence are referred to as dependant demand inventories. | Finished goods items, which are ordered by external customer or manufactured for stock and sale, are referred to as independent demand items. |
| Basis of inventory Demand | A business will have to look at what the forecast customers will demand for their finished products and order the goods to fulfill that order. | Independent demands for inventories (goods) are based on confirmed customer orders, forecasts, estimates and past historical data. |
| Management of Demand | Dependent demand inventories (raw materials and components to manufacture the finished goods) are computed and managed using a system known as Material Resources Planning (MRP), which considers not only the quantities of each of the component parts needed, but also the lead times needed to produce and receive the items. | Finished goods inventories (independent demands) are managed with sales order process and supply chain management processes based on sales forecasts. |
| Examples | Dependent demand, on the other hand, is demand for component parts or subassemblies. For example microchips in the computer, wheels on bicycle, the cheese on the pizza, and switch for television or mouthpiece for phone. | Independent demand is demand for a finished product such as bicycle, computer, television, pizza, car or phone. |
Key Takeaway
An inventory of an item is categorized independent demand when the demand for such an item is not dependent upon the demand for another item whereas an inventory of an item is categorized as dependent when demand for such an item is dependent upon another item.