Posted in Marketing and Strategy Terms, Total Reads: 403
Definition: Independent Demand
There are two school of thoughts regarding independent demand, both are right in the sense of the usage independent demand. One, independent demand is the demand for an end or finished product whereas the demand for component parts or sub assembly which are used to produce the good fall under the dependent demand frame. Second, dependent demand can also be considered as the demand for after sale or complementary goods which are sold post the sale of the end product.
Eg. A car can be considered as a finished product while a change in its suspension, tyres or any of its constituents would form a part of dependent demand under the first school of thought while the sale of car cleaning fluid or car polish which might be due to sale of cars or presence of cars, i.e. they are complementary to the car can also be considered as forming a dependent demand related to independent demand of cars.
Correct estimation of the dependent and independent demands is very essential for maintaining the requisite amount of inventory, and the method varies for each of the demands. The inventory for independent goods i.e. goods with independent demand, are managed using the sales order process and supply chain management and are based on sales forecasts which are based on previous data and correct estimation of independent demand through forecasts. Whereas the demand for raw material as constituents or complementary goods is determined by management resource planning and enterprise resource planning based on JIT(Just in time), Kanban and other material planning concepts, which are dependent on the demand of the finished goods having independent demand. All the decisions are dependent on the internal movement of goods as well as the external demands and the frequency of order and delivery of the goods.