Only 20% of the SKUs in your distribution center make up 80% of your volume.
This point, to most people in distribution, is not a big surprise. Most people already know the 80-20 rule, or at least have heard of it. What is a surprise to most people in distrib
ution is that they are missing huge opportunities in efficiency by not applying the rule. As a systems integrator I see different distribution centers every week. No matter what industry I go to – from apparel to auto parts – everybody does distribution the same basic way. Oh, there are nuances, of course, but by and large, they use the same application of technology for their entire operation. They ignore the Pareto Principle.
Let me explain.
Italian economist Vilfredo Pareto observed in 1906 that 80% of the land in Italy was owned by only 20% of the population. Later, business-management thinker, Joseph M. Juran, further developed the 80-20 rule and named it after Pareto by observing that 20% of the pea pods in his garden contained 80% of the peas.
In the distribution center, like the garden, the same principal holds true (in general).
Balance is not always good. Leveraging the natural imbalance of product movement is an opportunity to drive tremendous benefits to you and your company. Single-technology distribution systems assume that all products should be handled the same way. Think about it – if you have a static pick slot for every SKU in your distribution center, and you have a person walk to every location, you have a single-technology system. Single-technology systems make the assumption in the chart on the right.
Mr. Pareto would suggest that we should apply different technologies on the 20% of the SKUs that generate 80% of your business than we do on the 80% of the SKUs that only generate 20% of your business. In other words, we need to apply multiple technologies to optimize the efficiency in different “bandwidths” of the Pareto Curve of your SKU base.
Get this principle right and you are well on the way of creating a world-class distribution operation.
In subsequent posts, I will talk about what technologies apply to different parts of the Pareto curve, and why. Stay tuned!
Want to learn more about leveraging the Pareto Principle in your distribution center? Contact abco automation for a consultation.
