Independent versus Dependent Demand
Briefly. the distinction between independent and dependent demand is this: With independent demand. the demands for various items are unrelated to each other and therefore the required quantities of each must be determined separately or independently. With dependent demand (which is addressed in detail in the next chapter). the requirement for any one item is a direct result of the need for some other item. usually a higher-level item of which it is a componen1 or subassembly. In concept. dependent demand is a relatively straightforward computational problem. The required quantities of a dependent-demand item are simply computed, based on the number needed in each higher-level item where it is used. For example, if an automobile company plans on producing 500 automobiles per day, then obviously it will need 2,000 wheels and tires (plus spares). The number of wheels and tires needed is dependent on the production level for automobiles and not derived separately. The demand for automobiles, on the other hand. is independent-it comes from many sources external to the automobile firm and is not a part of other product and so is unrelated to the demand for other products. To determine the quantity of independent items that must be produced, firms usually turn to their sales and market research departments. They use a variety of techniques, in- . c1uding customer surveys. forecasting techniques, and economic and sociological trends. Because independent demand is uncertain. extra uni.ts must be carried in inventory.