The 80-20 rule, also known as the Pareto principle, was discovered by Italian economist Vilfredo Pareto at the beginning of the 20th century. He observed that most causal relationships in economics – and in fact in life – follow a highly unequal distribution.
He was first looking at the division of wealth in the Italian society and realised that the richest 20% of the population owned roughly 80% of all the assets. Since then, the 80-20 rule has caught on and found useful application in other areas of life.
When looking at other causal relationships in life, we could presume that 20% of the criminals commit 80% of the crimes; 80% of the deaths stem from 20% of the causes, 20% of the movies are responsible for 80% of the movie industry revenue, and so on. Upon checking the actual data, you will be surprised how close these guesses actually are.
It doesn’t matter, if the numbers are not always exactly 80 and 20 percent, what matters is that we draw the right conclusions from this unequal distribution. For instance, knowing that 80% of the business comes from just 20% of the customers, we should analyse those customers and try to attract more of their kind, while neglecting those that only give us 20% of the business.
What does this mean for your intralogistics? Does the 80-20 rule tell us anything useful about warehousing, storage operations and order picking?
Here are a couple of suggestions. Feel free to check them out by gathering some data or ignore them at your own risk.
“80% of the downtime is associated with 20% of the possible causes.” Find out where and why this downtime occurs and address the underlying issues. You’ll save time and money by ignoring the other 80% of the causes.
“80% of the maintenance and service costs are for just 20% of your equipment.” Why is some of your equipment more prone to damage and wear than the rest? Try to locate the reasons and you might stumble upon potential savings.
“80% of all errors in order picking are attributable to 20% of the reasons.” By taking a closer look at these incorrect orders, you’ll very likely be able to draw conclusion about the causes. If so, go after the most serious causes first. This could make your distribution centre more accurate without turning your entire organisation upside down.
“20% of your warehouse equipment is responsible for 80% of the wasted energy.” Looking for ways to make your intralogistics a little greener? Then how about identifying the 20% of energy wasters that make the rest of the facility look bad by spoiling the overall energy balance.
“20% of the processes lead to 80% of damaged goods.” Maybe there are a few occasions in which your products are not touched gently enough or where storage conditions are not appropriate and therefore deteriorate your goods. If so, stop ignoring it and tackle the problem instead.
“20% of your stored goods amount to 80% of the total value.” Its quite normal that stored products differ greatly in value. If you find this to be the case in your warehouse, it might be worth looking at the most expansive ones in greater detail. Are the most valuable items stored appropriately? Are they secured against damage, theft and deterioration?
Granted, sometimes it might not be that easy to obtain the proper data to verify these assumptions, but in most cases it’s worth a try. The potential savings seem very promising indeed. It’s hard to imagine a more efficient way of problem-solving than starting with those causes that contribute the most to each problem at hand.
What’s your opinion? Is the 80-20 rule relevant in intralogistics or did I fall for a confirmation bias? Comment below!