Which module can create a sitemap based on entity reference rather than menus?
With the XML Sitemap module, the main alternate to menu-based sitemaps, is the XML Sitemap Node submodule.  

Enable the sub-module, then edit each content type.  There should be an XML Sitemap tab at the bottom of the form.  Set the inclusion and priority as needed.  An advantage of this, over using menu-based sitemaps, is that modified times will end up in sitemap.xml