Which of the following most closely describes dependent demand?
A. Demand generated by suppliers.
B. Sales forecasts.
C. Derived demand.
D. Demands placed on suppliers by their customers.
E. Net material requirements.
The correct answer and explanation is :
Correct Answer:
C. Derived demand.
Explanation:
Dependent demand refers to the demand for components, subassemblies, or raw materials that are required to produce a finished product. It is not driven by direct consumer purchases but rather by the demand for the final product in which these components are used. This concept is fundamental in inventory management, production planning, and supply chain management.
The term “derived demand” accurately describes dependent demand because the need for these materials arises from the production of another item. For example, in an automobile manufacturing company, the demand for tires, engines, and windshields depends on the number of cars that will be produced. If the company plans to manufacture 1,000 cars, it will need 4,000 tires (assuming each car requires four tires). Thus, the demand for tires is derived from the demand for cars.
Other answer choices do not correctly define dependent demand:
- A. Demand generated by suppliers is incorrect because dependent demand is not driven by suppliers but by production requirements.
- B. Sales forecasts apply to independent demand, which refers to the final product rather than components.
- D. Demands placed on suppliers by their customers is not entirely accurate because dependent demand originates internally within a company’s production planning.
- E. Net material requirements relate to material requirements planning (MRP), but they are a result of dependent demand rather than defining it.
Understanding dependent demand is crucial for efficient inventory control, as businesses must ensure that all necessary components are available in the right quantities to meet production schedules without excessive stockpiling, which could increase costs.