We’ve spoken about the Pareto Principle in past blog posts, how it states 80 percent of consequences stem from 20 percent of causes. While these aren’t hard-and-fast figures, the philosophy behind what’s being said rings true: Sometimes, minor changes to targeted elements of a given operation can have incredible impact on how smoothly things run. Let’s look at a few examples of how the Pareto Principle could be applied to OEM operations.
1. Unit and logistics costs for certain components
Original equipment manufacturers (OEMs) may need to purchase certain parts through separate suppliers because of their rarity or price point. Depending on the kinds of builds OEMs must perform, procurement can be further decentralized because of these factors. When OEMs finally decide to consolidate suppliers or standardize parts, the Pareto Principle can offer valuable insight. For example, which 20 percent of an OEM’s procurement orders constitute 80 percent of its upfront expenditures? Knowing this could help companies incorporate lean manufacturing initiatives that intelligently isolate the biggest expenses.
2. Smarter SKU rationalization
Building a leaner manufacturing plant may mean cutting back on a number of products in a company’s portfolio. By reducing stockkeeping units (SKUs), OEMs can limit resources like parts, as well as inventory space and the labor that goes into maintaining it. However, what products should be eliminated in order to make the biggest difference? The Pareto Principle should have the answer – the items in the bottommost 20 percent in terms of market performance will most likely create 80 percent of the waste in the stockroom and the sales floor.
3. Addressing the biggest perpetrators of downtime
In a manufacturing facility, it can be argued anything that goes against standard operating procedures generates downtime in one way or another. That said, focusing company resources on certain once-in-a-blue-moon downtime issues won’t nearly have the same benefits as eliminating recurring problems. Once again, the Pareto Principle would say 20 percent of downtime causes create 80 percent of the time spent out-of-order. Discovering which activities hurt uptime the most will offer the greatest reward.