Who Sat on Pareto?

By James M. Apple, Jr.

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

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.

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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.’

ABOUT THE AUTHOR

James M. Apple, Jr. is a Director in The Progress Group. Prior to co-founding The Progress Group in 1991, he was a Partner with Coopers & Lybrand’s SysteCon division. During 1992-1995 he served as a Senior Systems Advisor with Vanderlande Industries, a major conveyor and systems provider in Europe.

Jim is an internationally recognized thought leader in the area of facility design and integrated distribution systems. His contributions to the improvement of distribution practices have been recognized by his receipt of the prestigious Reed-Apple Award, which is given for lifetime contributions to the advancement of the material handling profession. Jim has also received the Institute of Industrial Engineers’ Facilities Planning and Design Award. He has written numerous articles and handbook chapters on warehousing and logistics operations and is a popular speaker on logistics seminar and conference programs.

Prior to SysteCon, Jim worked as an Industrial Engineer with IBM, was Supervisor of Facilities Planning for the Oldsmobile Division of General Motors and was Executive Vice President for an automotive aftermarket parts supplier. He holds B.S. and M.S. degrees in Industrial and Systems Engineering from the Georgia Institute of Technology.

Source: The Progress Group

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