Independent demand

Independent demand is demand for an item which is unrelated to the demand for other items.

"Another way to understand inventory is to separate it into two broad categories: dependent and independent demand. Understanding this difference is important as the entire inventory policy for an item is based on this. 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."

"The relationship between independent and dependent demand is depicted in a bill of materials (BOM), a type of visual diagram that shows the relationship between quantities. Dependent demand order quantities are computed using a system called material requirements 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."

Bill of materials

In IT systems supporting production management and warehouse management, the BOM structure of products is the starting point and the basis of MRP (Material Requirements Planning), MES (Manufacturing Execution System) and APS (Advanced Planning System) mechanisms.

Basic IT systems based on databases allow for the creation of BOM structures for products and use them for the above-described purpose, i.e. for generating orders to suppliers based on orders from recipients. More advanced systems have BOM structures extended by sets of operations required to produce a given intermediate along with the time needed to carry them out. Fortunately, they have the ability to run basic MRP mechanisms allowing to generate material demand along with approximate maturity dates of a given raw material. In APS-class systems, we have the possibility to apply advanced relationships between individual operations, semi-finished products, components and raw materials to BOM structures, and thanks to the use of advanced production planning and resource optimization mechanisms, we have the opportunity to generate a very detailed demand for raw materials for production, including detailed dates and times maturity. APS class systems also allow generation of very detailed production plans taking into account the availability of individual resources required for production (operators, machines and tools).

"First research question is "How to deal with the diversification of the products". The second research question is "How to developed one product structure that has capability to cover unlimited product variant". The approach to solve those two research questions is carried out by developing a model of product structure, developing database, and developing interface for modeling product and its variants."

Examples of Independent demand

• Consumer Goods: Examples of consumer goods include food items, clothing, electronics, and other items that are purchased by individuals for personal use. These items are typically purchased independent of any other items, and demand for them is usually determined by consumer preferences.
• Raw Materials: Raw materials are any materials that are used in the production of goods and services. These materials can include metals, lumber, fabric, chemicals, and other items that are used in the manufacturing process. In most cases, the demand for these materials is independent of the demand for other materials.
• Services: Services are tasks that are performed by individuals or organizations in order to provide a benefit to customers or other businesses. Examples of services include accounting, legal advice, and consulting. Demand for these services is often independent of the demand for other services.

Advantages of Independent demand

Independent demand can be a great way of meeting the needs of customers without relying on the demand for other items. The advantages of independent demand include:

• Increased flexibility and control: As independent demand is not reliant on the demand for other items, it provides increased flexibility and control in terms of responding to customer needs.
• Improved customer service: As independent demand allows for more accurate forecasting and planning, it can help to improve customer service by providing more reliable and timely delivery.
• Decreased inventory costs: As independent demand is more predictable, it can reduce inventory costs as it reduces the need to carry excess inventory.
• Reduced risk: As independent demand is more predictable, it can reduce the risk of unexpected demand fluctuations, which can lead to lost sales or overstocking.

Limitations of Independent demand

Independent demand has several limitations which can affect the accuracy of demand forecasting. These include:

• Seasonality: Independent demand is often subject to seasonal fluctuations, which can make predicting the demand for a product more difficult.
• Variability: Independent demand can be very variable, making it difficult to accurately predict future demand.
• Unpredictability: Independent demand is often unpredictable and can fluctuate from year to year, making long-term forecasting difficult.
• Complexity: Independent demand can be complex, due to the number of factors that can influence it, such as economic and social conditions.
• Competitive factors: Changes in competitors, or in the marketplace, can have a significant impact on the demand for a product.

Other approaches related to Independent demand

There are several other approaches related to independent demand, such as:

• Time-series forecasting: This approach uses historical data to predict future demand. It is based on a statistical analysis of past demand patterns and is often used in conjunction with other forecasting methods.
• Qualitative demand forecasting: This approach uses expert opinion, market research, and surveys to gauge customer demand. It is often used in conjunction with quantitative forecasting methods.
• Simulation modeling: This approach uses mathematical models to simulate demand patterns. It is often used to test different scenarios and analyze the impact of changes in the marketplace.

In summary, there are several approaches to forecasting independent demand, including time-series forecasting, qualitative demand forecasting, and simulation modeling. Each of these methods has its own advantages and disadvantages, and can be used depending on the type of information needed.

Independent demand — recommended articles

Dependent demand — Master production schedule — Production capacity curve — Target cost — Abc inventory classification — Optimization of transport — Types of supply — Sales trend — Determining the length of the production cycle

References

• Avak B. (2006).Variant Management of Modular Product Families in the Market Phase, ETH ZURICH, pp. 25-28, 52-53, 109-111.
• Grubbström R. W., Huynh T. T. T. (2006). 18th ICPR paper: Analysis of Standard Ordering Policies within the Framework of MRP Theory, Department of Production Economics, Linköping Institute of Technology , Linköping, pp 1-3.
• Martawirya Y. Y., Raharno S., Nurhadi I. (2008). Development of Bill of Materiale of Produkt Variants. Mechanical Engineering Department, Faculty of Mechanical and Aerospace Engineering, Indonesia, pp 2868-2869.
• Sanders N. and Council of Supply Chain Management Professionals (2014). The Definitive Guide to Manufacturing and Service Operations, The: Master the Strategies and Tactics for Planning, Organizing, and Managing How Products and Services Are Produced, Lehigh University, New Jersey, pp 9-10.

Footnotes

Author: Daniel Żołna