How the 80/20 Principle Can Boost Your Warehouse Operations

Are you using the 80/20 principle to organize and optimize your warehouse? If not, now is the perfect time to start. What is the 80/20 principle? How can you apply it in the warehouse? And where can you get help? Here are a few answers to your questions.

What is the 80/20 Principle?
The Pareto Principle - often referred to as the 80/20 rule - stipulates that roughly 20% of a process results in about 80% of its results. This can be applied to many processes, and it includes both positive outcomes and negative ones. Just as 20% of clients might result in 80% of your sales, for instance, 20% of shipping errors might cause 80% of product losses.

As with any principle, this isn't a hard-and-fast rule. Some processes may see a 70/30 split while other ratios might even be more like 90/10. But even with variations, the theory provides plenty of useful data.

How Can You Apply the 80/20 Rule?
This principle isn't just good for theorizing, of course. It has real-world applications through a business's operations.

In the warehouse, for instance, one of the most common uses of this rule is to organize inventory more effectively. A company might analyze its sales trends and discover the 20% of products that generate 80% of sales. Placing these items close to pickers helps prevent wasted time and effort reduces traffic flow and accidents throughout the warehouse - and facilitates quick and efficient restocking.

What physical locations in the warehouse account for the most actual usage? While the entire storage space may get regular use, which portions see the most activity? This might include certain sections of inventory storage, the shipping or receiving departments, an office, or a mezzanine. By focusing on increasing the efficiency of these parts of the operation, you make a bigger dent in productivity than worrying about the rest.

You might also apply the 80/20 rule to warehouse accidents and incidents. What are the leading causes of accidents, damage, loss, and even close calls? For example, conflicts between pedestrians and forklifts may be the biggest issue. In this case, adding safety features such as pedestrian alarms or changing the layout to better separate pickers and forklifts could cause a drastic drop in incidents.

In effect, you can use the 80/20 principle to help you better understand many elements of warehouse function. It can identify which stock has the highest costs of storage or picking, which equipment brings the most value versus its cost, or where renovations and updates will improve efficiency the most.

How Can You Learn About Your Ratio?
How does a warehouse owner learn what are their 80/20 elements? In general, this is the result of what's known as a Pareto analysis. A Pareto analysis involves identifying the problem you want to solve, noting the various possible causes, ordering these according to their impact, and then developing solutions to the highest impact events.

A warehouse, for instance, might want to reduce customer returns. An analysis of reasons for returns over time might then show that the vast majority are for incorrect shipments. While other reasons exist, focusing on incorrect picking yields the biggest bang for the company's buck. You can then analyze why picking errors occur. And, again, a Pareto analysis can even help you identify which solutions provide the best return.

Where Can You Learn More?
No matter where you are in analyzing your warehouse and improving its numbers, the team at Lone Star Pallet Rack can help. With more than 20 years of experience in the warehouse industry, we can help you with research, finding solutions, and implementing them. Call or visit today to get started.