As mentioned there is a need to hold inventory due to the different variations on demand for a product.
Demand is essentially the request for a service or a product from a customer.
There are two types of demand:
- Independent Demand – This is the demand for a product or a service from a customer (this customer may be internal or external to the business).
- Dependent Demand – The demand for components or stock that is required to supply the independent demand item.
Please watch the following video for a visual explanation of Dependent and Independent Demand: