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It general that 20 percent of the product varieties accounted for 80 percent of the sales. This 20:80 ratio is a fairly common oneand is referred to as the Pareto principle, after the Italian economist Vilfredo Pareto.
Companies with complex products, services, or processes may want to investigate ways to reduce that complexity. Management may want to review the design of the company’s products and processes to standardize them and reduce the number of different components, tools, and processes required. Products should be designed to consider the Pareto principle and take advantage of commonality of parts. An analysis of components will generally reveal that 20 percent of the components are used in 80 percent of the products.
Companies with complex products, services, or processes may want to investigate ways to reduce that complexity. Management may want to review the design of the company’s products and processes to standardize them and reduce the number of different components, tools, and processes required. Products should be designed to consider the Pareto principle and take advantage of commonality of parts. An analysis of components will generally reveal that 20 percent of the components are used in 80 percent of the products.
If this is the case, then companies need to consider two other factors. First, are the remaining components used in key products? If so, could equal quality be achieved by using the more common parts? If not, can the products be sold for a premium price to cover the costs associated with the use of low-volume components? Second, are the parts specified for use in products purchased by important customers who are willing to pay a premium price for the products? If so, the benefits from the complexity may be worth the cost. However, would customers be equally satisfied if more common parts were used and the product price were reduced? Complexity is acceptable only if it is value-added from the customer’s point of view.
