The 80-20 Pareto Principle

Have you heard of the Pareto Principle? It is a term used to describe the 80-20 rule. The 80-20 rule can be applied to every manufacturing process (make to order, make to stock, engineer to order, assemble to order, etc. Applying the 80-20 rule to the 5M’s of manufacturing will maximize your company’s success and profitability.

MAN (Labor)
The 80-20 rule suggests that 20% of our labor contributes 80% of your company’s success. If this is true, your focus needs to be on getting the other 80% of your labor to perform as competently or efficiently as those who are showing to be high level performers.

This could simply be a matter of training to bring skill sets up to par, or managing your labor better so everyone knows what is expected and they are held accountable to perform their assigned tasks on time and to the level of completeness the company expects.

It may be required to implement a better hiring procedure to ensure the labor being hired has the skill set or ability to learn and perform at the level that is expected and ultimately demands.

Methods (Processes)
The 80-20 rule suggests that 20% of your methods and processes are solid and robust while 80% of them may not be providing the level of results you expect or require. If this is the case, your focus might turn toward analyzing the methods and processes used in your company and finding out which methods need to be overhauled or modified to allow a higher percentage of success in your business.

Machines (Equipment)
The 80-20 rule suggests that 20% of your machines are responsible for 80% of the value added content of producing your product. Another possibility is that 20% of your machines are producing 80% of your overall scrap.

In both situations, your goal should be to standardize your machines/equipment, as much as possible to remove any variation in quality, throughput, up time, floor space, etc. Monitoring and tracking the overall performance of each of your machines will allow you to better understand which machines are contributing positively or negatively. Once this is known, your action plan of attack to solve machine issues will be much more guided and effective in making the improvements necessary to realize the continuous improvement you desire.

The 80-20 rule suggests that 20% of your material accounts for 80% of the cost of your product. Or that 20% of your materials cause 80% of your quality defect issues. Another may be that 20% of your material costs 80% of the overall shipping costs for inbound products.

In all of these examples, understanding which materials fall into an 80-20 category will allow you to further investigate what can be done to improve your overall variances in your raw materials.

The 80-20 rule suggests that 20% of your products contribute 80% of your profits or sales or growth. Whatever it is, the goal would be to find ways to increase the sales, production and distribution of your top money making products.