Pareto principle and supply chains

What are the areas where the Pareto Principle is applied in supply chains?

1️⃣ Inventory Management
2️⃣ Supplier Management
3️⃣ Risk Management
4️⃣ Process Improvement
5️⃣ Cost Reduction
6️⃣ Customer Service

🔹 ABC Analysis in Inventory Management:

Identify the key items that represent 80% of your sales and give them priority. Classify your products into three categories:
A (high value), B (medium value), C (low value).
Ensure that high-demand items are always available.
#Inventory_Management #ABC_Analysis

🔹 Supplier Management:

Key suppliers: Approximately 20% of suppliers often provide 80% of the value. By focusing on these key suppliers, companies can build stronger relationships, negotiate better terms, and ensure more reliable supply chains.

🔹 Risk Management:

Understanding key suppliers allows for the development of strategies to mitigate disruptions.
#Risk_Management

🔹 Process Improvement:

Identify the 20% of processes that cause 80% of delays. Addressing these issues improves efficiency.
#Process_Improvement

🔹 Cost Reduction:

20% of activities contribute to 80% of costs. Identifying and optimizing these areas significantly reduces costs.

🔹 Customer Service:

20% of customers generate 80% of revenue. Prioritizing service for them strengthens business relationships.

In summary, by leveraging the Pareto Principle, companies can improve various aspects of the supply chain by focusing their efforts on the most impactful areas to enhance efficiency, reduce costs, and improve overall performance.

Written by: Mr. Hassan Mohammed Al-Momen
Supply Chain Specialist