Meaning of independent and dependent demand

A major distinction in the way inventory planning and control is managed is whether demand for items in inventory is independent or dependent. Dependent demand items are typically subassemblies or component parts that will be used in the production of a parent or finished product. A classic example of this is demand for wheels for new cars.

Independent demand items, on the other hand, are the finished goods or other end items. Generally, these items are sold, or at least shipped out, rather than used in making another product. In such cases there is usually no way to precisely determine how much of these items will be demanded during any time period because demand typically includes elements of randomness.

Independent demand is demand for a finished product, such as a computer, a bicycle, or a pizza. Dependent demand, on the other hand, is demand for component parts or subassemblies. For example, this would be the microchips in the computer, the wheels on the bicycle, or the cheese on the pizza Therefore forecasting plays an important role in stocking decisions, whereas for dependent
demand items, stock requirements are determined by reference to production plan.

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