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Who sat on Pareto?

The 80/20 rule is changing into something closer to 60/40 in distribution centers.

Jim Apple -- Modern Materials Handling, 9/1/2003

In the distribution world, we've all been introduced to Pareto. That wonderful curve created by ranking products in descending activity, and then plotting their cumulative values, has been a mainstay in designing processes and systems.

We find great comfort in knowing that we can address 80% of the problem by focusing on 20% of the products. We can more easily imagine the flow characteristics of product groups at different points along the curve.

But, I've been noticing as I use this faithful old tool that the curve is not as steep as it used to be. The slow movers in the 'tail' now often represent 30–40% of the activity. And, the tail gets longer as product development departments continue to add items, sometimes with only small, subtle differences to capture another cherished percentage point of market share.

As a consumer, I'm not sure whether the ever-expanding choices make our lives richer, or only more confusing. Do we really need 18 different ways to buy an egg, or, 36 brands, flavors and sizes of mustard?

As hard as we try to produce small lot sizes efficiently, the lowest unit cost comes from a long production run. We may be winning some battles with our 'supply chain thinking,' but heavy-handed manufacturing measures are still winning the war.

So, as the number of products grows, production runs, and their attendant cycling inventories seem to grow, as well. At a time when theory, and comprehensive economic analysis say that inventories should be shrinking, we are still pushing more and more product into outside warehousing space.

The economic downturn, on the heels of the dot-com bubble created a glut of warehousing space. But, I predict at the first hint of better times that we will quickly fill these buildings with efficiently produced, but obsolescence-prone products.

In fulfillment operations, the flattening and stretching of the Pareto curve has made all of the products more equal. The opportunity to get a quick hit with the fast movers is not as big as it once was. The ever-growing array of slow movers spreads out our picking operation. When we attempt to concentrate the pick faces, and tighten the pick path, replenishment moves sky-rocket.

And, it isn't quite as much fun as it used to be. Or, maybe this is just a reaction from my summer reading of Thoreau's classic, 'Walden Pond.' Perhaps, I should have concentrated on 'Who Moved My Cheese.'


Author Information
Jim Apple can be contacted at japple@theprogressgroup.com

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