Dependent demand definition
/What is Dependent Demand?
Dependent demand is the demand for component parts, raw materials, or sub-assemblies. This demand does not occur until there is demand for a parent item, which is typically a product. The concept occurs almost entirely within the production department, and is a key issue in materials management. A business can set up bills of materials for its products, which are then used to determine the amount of demand for component parts, based on the demand for finished goods.
Example of Dependent Demand
As an example of dependent demand, when a manufacturing company is producing electric golf carts, dependent demand consists of the production processes to construct the tires, motor, seats, steering wheel, controls, and chassis of however many golf carts are scheduled for production. Thus, if 100 golf carts are scheduled for production, the associated dependent demand includes 400 tires and 100 motors. In this case, the dependent demand for electric motors is based on a known factor, which is the number of golf carts to be manufactured. This allows the procurement department to reliably place orders with suppliers for 400 tires and 100 motors.
Dependent demand is usually calculated through a material requirements planning system.
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Dependent Demand vs. Independent Demand
Dependent demand differs significantly from independent demand, which is the demand for products that are sold directly to consumers. It does not depend on the demand for other items and is instead driven by external market conditions, customer preferences, and buying behavior. The differences between the two concepts are as follows:
Relation to other products. Dependent demand is driven by the demand for parent items, while independent demand is driven by customer demand.
Forecasting basis. The forecasting for dependent demand comes from production schedules, while the forecasting for independent demand comes from market analyses.
Demand stability. Dependent demand is relatively stable, since it can be predicted from parent item demand, while independent demand can vary substantially, based on external factors.