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How useful is Long Term Planning in Fast Replenishment systems?
Many companies adopting Fast Replenishment systems across their extended value chain have done away with advance long term planning. Their advisors tell them that long term planning is not necessary if the company is capable of responding fast to actual demand. Is it true?
Fast Replenishment systems respond quickly to actual consumer demand and ensure that finished goods are made available to fulfil it. However, we should keep in mind that it applies only to material flow across the value chain.
There are various other decisions required to operate the system smoothly and some of these have longer lead times. Take capacity expansion, for example. If it takes 12-18 months to put up a greenfield factory, we must assess the likely demand 12-18 months ahead, to take a call on whether to initiate the expansion activity or not. It can be at an aggregate level if the factory is capable of producing multiple skus with fast changeovers. Similarly, there are decisions on diversifying vendor base, launching new products, etc.
However, it is important to restrict longer term planning to such high lead time decisions. Product flow decisions and their execution needs only a near term demand outlook, depending on the flexibility and responsiveness of the supply chain.