Your warehouse and the 80/20 rule

What is the 80/20 rule?

    The 80/20 Rule, also known as the Pareto Principle, named after the Italian economist Vilfredo Pareto, who observed that roughly 80% of results come from 20% of the effort made to achieve the desired results and 20% of the results come from 80% of the effort.

     Originally the 80/20 rule was applied by Pareto to distribution of income and wealth among the population. However, it has now become a more widespread rule having applications in economics, software, sports and of course, business.

     It has often been stated that “80% of sales come from 20% of our customers”. This rule is most likely true for your business. The numbers might not be exactually 80/20, but the odds are that most of your sales are coming from a smaller number of your customers. But this has a more important implication for your warehouse.

How does this apply to your warehouse?

     As previously stated the 80/20 rule suggests that 80% of your results come from 20% of your efforts. It is highly likely that 80% of your business revenue comes from 20% of the products that you sell. It might be slightly more or slightly less. But it is extremely likely that this is the case.

     If you don’t already know what the top 20% of your products are, then you need to find out!  You need to sit down and work out what they are, because if they are your top items, it is likely that these items are sold the most. They generate the most amount of activity in your warehouse.

    The top 20% of products that you sell, are likely to be cause of 80% of the effort of your warehouse staff every day when order picking. For most of the time your warehouse operatives are working, picking and processing the orders, is largely spent on those 20% of products.

What should you do about it?

     Because the top 20% of your products are the cause of the most amount of work and bring in the highest amount of revenue for your company, all the processes around those items must be as efficient as possible.

    It may make sense to move the top 20% together and as close to the packing area as possible to dramatically improve order picking times. The better you can manage your top selling 20% items the more likely you are to make an 80% productivity improvement, according to the 80/20 rule.

    To do this successfully, you will need to know the top selling 20% of products. Depending upon the nature of your business you may find that some of the products that make up your top 20% are faster moving and others which are sold less frequently but still bring in a high revenue, may not necessarily need to be moved. It may be more effective to re-locate the top 20% of your frequently sold items rather than the top revenue producing when looking to make efficiency gains.

Back to news