What Is the Difference Between Independent Demand Inventories and Dependent Demand Inventories?
The Management Study Guide states that the main difference between independent demand inventories and dependant demand inventories is that demand for items under independent demand is not dependent on demand for any other items. However, demand for items under dependent demand usually depends on demand for other items. Examples of items under the independent demand category include finished cars, while those in dependent demand include raw materials.
Finished goods that are sold to external customers fall under independent demand and are based on forecasts, customer orders, estimates and available historical data. Inventories for items under independent demand are managed through supply chain management and sales order processes, while the demand for raw materials to manufacture the finished goods is managed through Material Planning Process, or Enterprise Resource Planning systems. It is very complicated to manage Inventories of raw materials compared to managing inventories of finished goods because managing Raw Materials Inventories involves coordinating lead times, delivery schedules of raw material supplies, delivery times and managing complex logistics. Transporting and warehousing raw materials before they are needed for production is also challenging, as are periodic reviews and audit of inventory levels, as analyses of reports are important for management decisions. The relationship between dependent and independent demand is usually illustrated through a Bill of Materials.