Independent and Dependent Demand

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Inventory is the total amount of goods or materials contained in a store at any time. Store owners need to know the precise number of items on their shelves and storage areas in order to place orders or control losses. Factory managers need to know how many units of their products are available for customers orders. Restaurants need to order more food based on their current supplies and menu needs. All of these business rely on an inventory count to provide answers. The word ‘Inventory’ can refer to both the total amount of goods and act of accounting them .Many companies take an inventory of their supplies on a regular basis in order to avoid running out of popular items. Others take an inventory to insure the number of items ordered matches the actual number of items counted physically. shortages or averages after an inventory can indicate a problem with theft (called “shrinkage” in retail circles) or inaccurate accounting practice(by Michael pillick, , 22.4,2011) REASONS FOR KEEPING INVENTORY

* Reduce the risk of supplier failure or uncertainty-safety and buffer stocks are held to provide some protection against such contingencies as strikes, transport breakdowns due to floods or snow, crop failures, wars and similar factors * Protect against lead time uncertainties such as where suppliers’s replenishment and lead times are not known with certainty-in such cases an investment in safety stocks is necessary if customer service is to be maintained at acceptable levels * Meet unexpected demands or demands for customization of products as with agile production * Smooth seasonal or cyclical demand

* Take advantage of lots or purchase quantities in excess of what is required for immediate consumption to take advantage of price and quantity discounts * Hedge against anticipated shortage and price increases, especially in times of high inflation or as a deliberate policy of speculation * Ensure rapid replenishment of items in constant demand ,such as maintenance supplies and office stationery (Kenneth lysons and Brian farrington “purchasing and supply chain management 7th edition 2006) INVENTORY MANAGEMENT:

Are generally separated by the nature and types of the inventory being considered and can be classified as dependent demand and independent demand models (Wisner el’2009 pg.218) THE AIMS OF INVENTORY MANAGEMENT

* To provide both internal and external customers with required service levels in terms of quantity and order rate fill * Ascertain present and future requirements for all types of inventory to avoid over stocking while avoiding ‘bottlenecks’ in production * Keep costs to a minimum by variety reduction ,economical lot sizes and analysis of costs incurred in obtaining and carrying inventories * Provide upstream and downstream inventory visibility in the supply chain (lysons and Farrington ‘purchasing and supply chain management 7th edition 2006) INENTORY MANAGEMENT TECHNIQUES

* MRP and JIT techniques are best suited for dependent demand * Forecasting methods and inventory management techniques for distribution of inventories are best suited for independent demand(Praveen Sarma and Summit Jangid ‘’ 22nd April 2011)

DEPENDENT DEMAND: Is the internal demand for parts based on the demand of the final product in which the parts are used. Subassemblies, components, and raw materials are example of dependent demand items. Dependent demand may have a pattern of abrupt and dramatic changes because of its dependency on the demand of the final product, particularly if the final product is produced in large lot sizes. Dependent demand can be calculated once the demand of the final product is known. Hence, material requirements planning (MRP) software is often used to compute exact material requirements. INDEPENDENT DEMAND: Is the demand for final products and has a demand pattern affected by trends, seasonal patterns, and...
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