What is the Pareto Principle? 80/20 rule

The Pareto Principle

It is also known as the 80/20 rule and was described in 1896 by the Italian Vilfredo Federico Pareto, philosopher, and economist. According to this thinker, around 80% of the achievements derive from 20% of the actions, which has great repercussions. According to the Pareto Principle, almost any phenomenon in life can be explained by that ratio. This is seen in business, economics, sports, time use, and personal performance. If you implement this principle, you can bring a new dynamic to your life in general and your business. Pareto established that 80% of the land in his country was held by 20% of its inhabitants. He also stated that 20% of his fruit trees produced 80% of the fruit crop. From this, he deduced that a relatively small percentage of causes have an impressive effect on different social spheres.

How to implement the Pareto Principle

If you want the Pareto Principle to be a constant in your daily life, you must first list all your daily activities on a particular day. Then, establish which one impact achieving your objectives most and which hinders them. Emphasize, then, those that allow you to advance and achieve more. 

This strategy is also applicable to the business area. As a team, determine which actions are the ones that allow you to achieve the best objectives of your company. With this, you will have a broad and clear panorama that will enable you to advance in conquering your business objectives.

This perspective allows you to identify and focus efforts and resources on operations, niches, products, clients, routes, or processes where the results are greatest. 

How it can be applied

Five examples of how it can be applied in your company in the logistics sector:

1. Customer analysis: Identify which customers generate 80% of your income, or represent 80% of your orders. When selecting them, focus on providing extraordinary service and strengthening your business relationships.

2. Inventory management: Analyze which products or SKUs represent 80% of your sales. It ensures they are always available, improving storage, distribution, and delivery.

3. Route optimization: What transport routes cover 80% of your deliveries? Focus on optimizing these routes, reducing delivery times, minimizing transportation costs, and maximizing operational efficiency.

4. Evaluate your processes: Examine the structure of your logistics operations and identify which stages consume 80% of your time or resources. Find out how to simplify, automate or eliminate these activities to streamline your processes and reduce waste.

5. Customer segmentation: Classify your customers according to whether they satisfy their specific needs. Dedicate more attention to the most important ones, personalize your services for those clients, and meet their needs.

At LOOPER, we seek significant results by focusing our efforts on the areas with the greatest impact. Implementing the 80/20 rule allows us to make analyzed, informed decisions and obtain the maximum performance. By adopting this philosophy, you can lead your company toward sustainable growth.