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Vilfredo Pareto: Business
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Pareto's Law is old news to a lot of Industrial Engineers and people in the Quality profession dealing with process improvement, but it can be used to analyze a variety of other things in your business. If you're a manufacturer you can use Pareto's Law to evaluate whether to add to or eliminate part of your product line, or evaluate your customers. If you're a WD, you can use it to analyze your stocking inventory (and to determine how many of those SKUs that manufacturers claim are "AA movers" really are). Jobbers can use it as a tool to allocate floor and shelf space.
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Author Richard Koch has written two books on the wisdom of Vilfredo Pareto, who died in 1923. Koch's latest, The 80/20 Revolution (Nicholas Brealey), tells you, whatever your business, to search for just two numbers. Identify the 20% of activities that take 80% of the time: and then the 20% that account for 80% of total cost (they are often one and the same).
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Let's imagine you own Pareto Pistons, a manufacturer with $10 million in sales. Gather the gross sales history for all of your part numbers for the past 12 months in a spreadsheet like Microsoft Excel. Include everything that you sell, including cataloged part numbers and component parts if you sell those. If you can ... list the total gross profit generated by each part number, that's even better and you're ahead of most of your competitors. Sort your list in descending order, with your biggest seller at the top of the list. Manufacturers: if you use MRP or ERP software in your business, it may be able to produce an ABC analysis with this type of information.
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