Dependent demand

Dependent demand defines all parts and resources needed to produce finished goods needed to satisfy independent demand of customers and all other external market forces . It is a common production planning concept used in ERP and MRP systems, dependent demand is calculated based on BOM bill of material needed to produce each particular finished product. Calculation of this number is based on market analysis, orders of customers and wholesalers, predictions, strategic plans, production capacity, availability of machines and human resources, etc.

Dependent demand defines all the parts and resources needed to produce the finished goods needed to meet the independent demand of customers and all other external market forces. This is a common concept of production planning used in ERP and MRP systems, the dependent demand is calculated on the basis of the BOM material list needed to produce each individual finished product. The calculation of this number is based on market analysis, customer orders and wholesalers, forecasts, strategic plans, production capabilities, machine availability and human resources.

Material requirements planning

Material requirements planning (MRP) - these are techniques supporting production management that improve the production processes in a given company. These techniques optimize the stocks of the company. MRP methods are based mainly on professional computer software. However, if we do not have such a possibility, these systems are based on manual planning.

Application MRP

The MRP system eliminates many time-consuming calculations which result from adapting the production plan to the repeated changes in operating conditions, which are most often caused by delays in deliveries or unplanned changes in demand. With this solution, you can combine these things into one system:

• description of the size of orders and delivery dates of the company
• specify when the production started
• determine the size of given stocks in warehouses

The objectives of MRP

1. Reducing the size of records in the company.

2 Reducing the number of employees who deal with the supply of materials.

1. Reducing the number of orders that have not been completed by the lack of various materials.
2. Reducing the time that we spend waiting for the products and deliveries.
3. Creating a long-term planning plan.
4. Controlling the stages occurring in production.

The main purpose of the MRP system is to control the production process of a given company. On the basis of data, deliveries of goods and materials are planned, tailored to needs. The MRP system uses this data, among others, from Bom (Bill of Materials), i.e. a register of materials that we need to produce a given product.

The enterprise information system combines the combination of materials that are needed to manufacture the product and the production process plan. In addition, it analyzes the size of stocks, determines when these stocks need to be completed so that they do not lie in stores for too long. With this information, we are able to deliver materials to appropriate positions without unnecessary storage. Because there are frequent disruptions in the production process, the company must constantly monitor the implementation of the inventory plan and act accordingly when needed.

Enterprise Resource Planning

Enterprise Resource Planning (ERP system) - it is an IT system supporting enterprise resource management. It implements all managerial functions in the functional areas of the company. Despite the many tasks implemented by the ERP system, the most important element is the production of financial analyzes that are produced for the needs of the Chief Executive Officer.

This system is called the most effective way of enterprise resource plans, which allows for ongoing management and control at all levels of business operations. An important aspect is also the fact that the system is a holistic approach to the topic of supporting company management.

Features of ERP:

• Consideration of all sectors of the company's operations
• Supporting controlling
• Integration of all functions that the company has as well as its subsystems.
• Taking into account all the undertakings that the company performs within the logistics within the enterprise and projects related to the supply chain.

The advantages of using the ERP system

The use of ERP improves the functioning of the company's areas in terms of logistics, finance, customer service or production. The most important gains that we will achieve thanks to this system are the reduction of inventories, improvement of the management process and use of resources, improvement of activities related to the collection and use of information, improvement of production and logistic operations.

Examples of Dependent demand

• Raw materials: Raw materials are the most common example of dependent demand. These include materials such as steel, plastic, wood, rubber, and other materials needed to manufacture finished goods.
• Parts: Parts such as screws, bolts, nuts, and other components are another example of dependent demand. These parts are used to assemble a finished product and are essential for the production of the final product.
• Tools: Tools such as drills, saws, hammers, and other tools are needed to assemble parts into a finished product. Without these tools, production of the finished product would be impossible.
• Labor: Labor is another example of dependent demand. Workers are needed to assemble parts into a finished product and to operate machines required for production.
• Packaging: Packaging is needed to protect finished goods from damage during shipping and storage. This is an example of dependent demand as it is necessary for the final product to reach its destination safely.

Limitations of Dependent demand

Dependent demand has several limitations that should be taken into consideration when planning production. These include:

• The accuracy of the demand forecast. Dependent demand relies heavily on accurate demand forecasts in order to plan production. If the demand forecasts are inaccurate, then production plans will be off and lead to either over - or under-production.
• The ability to anticipate changes in the supply chain. Dependent demand relies on being able to anticipate changes in the supply chain, such as delays in delivery or changes in customer demand. If these changes are not anticipated and accounted for in the production plan, it can lead to disruptions in production.
• The complexity of the supply chain. Dependent demand relies on a complex supply chain that is difficult to manage and control. If the supply chain is not managed properly, then it can lead to delays and disruptions in production.
• The cost of production. Dependent demand can be expensive to implement and manage, as it requires the purchase of materials and resources upfront in order to produce the finished goods. This can increase costs for businesses if the demand for the finished goods does not meet expectations.

Other approaches related to Dependent demand

Dependent demand is an important concept for manufacturers and supply chain managers to consider when forecasting customer demand and planning production schedules. Other approaches related to dependent demand include:

• Capacity planning: Capacity planning is a process to ensure that the total production capacity of a company is aligned with the demand for its products. This involves analyzing the current capacity and then making adjustments to meet future demand.
• Just-in-Time Inventory: Just-in-time inventory is a system that allows a company to produce and deliver goods only when customer demand requires it, reducing the need for large inventories.
• Supply Chain Management: Supply chain management is the process of managing all aspects of the supply chain, from the supplier to the customer. This includes managing the flow of materials, information, and money.
• Enterprise Resource Planning: Enterprise resource planning is a system that integrates all of the different business processes, such as manufacturing, supply chain, and finance, into one system.

In summary, dependent demand is an important concept to consider when forecasting customer demand and planning production schedules and other approaches related to dependent demand include capacity planning, just-in-time inventory, supply chain management and enterprise resource planning.

Dependent demand — recommended articles

Material flow execution function — Production logistics subsystem — MRP II — Material stream — Master production schedule — Distribution cost — Critical resource — Process innovation — Optimization of transport

References

• Chan, Chi Kin; Zhou, Yan; Wong, Kar Hung, (2018). A Dynamic Equilibrium Model of the Oligopolistic Closed-Loop Supply Chain Network under Uncertain and Time-Dependent DemandsTransportation Research Part E: Logistics and Transportation Review.
• Grubbström, R. W., & Thuy Huynh, T. T. (2006). Analysis of standard ordering policies within the framework of MRP theory. International journal of production research, 44(18-19), 3759-3773.
• Mentzer, J. T., Moon, M. A., Estampe, D., & Margolis, G. (2007). Demand management. Handbook of global supply chain management, 65-85.

Footnotes

Author: Magdalena Worłowska