A circular reference is when either a product is a component of itself (and vice-versa) or whether a product is listed as a sub-component, or a parent of itself. You should take care to avoid having circular references in your BOM since this will cause significant inaccuracies.
For example, if you have Product B which is a component of Product A, and then Product A is also listed a component of Product B.
It's also a circular reference if a product is listed as a grand-child or grand-parent of itself. For example, if you have Product A which is a finished good, then Product B which is a sub-assembly and is a component of product A, then Product C which is a raw component/ingredient as a component of Product B. Then it becomes a circular reference if Product A is then listed as a component of Product C. It's wrong.
When calculating the sales history and therefore forecast requirements of a component, the system looks through the BOM, and sums up the requirements for each parent. If a parent is listed as a component of itself, it will therefore become an infinte amount and cause an error. In the above example, calculating the sales history for Product C, the system would add all the sales of Product B and Product A (correctly), but since Product A is incorrectly listed as a component of Product C, it would then re-add Product C again, which will also then re-add Product B and Product A, and then Product C again, on and on forever.
The system will detect this and deem the product BOM invalid, and will not include any forecasts for any items in this BOM hierarchy.
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