Dependent Vs. Independent Demand: 5 Differences plus Examples

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Dependent and independent demands are two broad categories of inventory. The categories are based on demand pattern and therefore, trying to establish the distinction between the two is necessary because the inventory management systems and process are different for both categories. Below are insights on the differences between the two with examples.

The Differences

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 whereas an inventory of an item is categorized as dependent   when demand for such an item is dependent upon another item.

Categorization

Finished goods items, which are ordered by external customer or manufactured for stock and sale, are referred to as independent demand items while raw materials and component inventories are dependent upon the demand for finished goods and hence are referred to as dependant demand inventories.

Basis of inventory demand

Independent demands for inventories (goods) are based on confirmed customer orders, forecasts, estimates and past historical data. As for dependent demand goods, 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.

Management of demand

Finished goods inventories (independent demands) are managed with sales order process and supply chain management processes based on sales forecasts whereas 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.

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

The difference between dependent and 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.
     
     

Summary

What is the main difference between dependent and independent demand?

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.