The 80/20 rule, also known as the Pareto principle, is an economic rule that states that 80% of all results come from 20% of all efforts. This rule was first introduced by Italian economist Vilfredo Pareto, who discovered that 80% of the land in Italy was owned by only 20% of the population. Later, this observation was applied more broadly in various business contexts, including purchasing, customer management and time management. The Pareto principle emphasizes the importance of prioritizing and focusing on the activities and customers that have the most impact on the company’s bottom line. By applying this rule, companies can work more efficiently and achieve better results, with less effort.
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Application of the 80/20 rule in business processes
The core of the 80/20 rule is to identify the critical 20% of activities that are responsible for 80% of a company’s results. Translated to the world of procurement and supplier management, this means that a small fraction of suppliers or products generate the most value for your business. By identifying and optimizing this part, and then prioritizing it appropriately, great benefits can be gained.
The influence of the Pareto principle on purchasing strategies.
In purchasing strategies, the Pareto principle is often used to determine who the key suppliers are. These suppliers are then strategically handled to build a mutually beneficial relationship. As a result, it makes suppliers more reliable and makes the supply chain function more smoothly. By focusing on these strategic suppliers, companies can reduce costs, increase delivery reliability and improve the quality of their procurement processes.
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Efficiency when it comes to time commitment and effort
The 80/20 rule applies not only to material things, but also to time and effort. Time management experts, such as Joseph Juran, have stressed that it is crucial to identify which tasks have the greatest impact on productivity. By prioritizing these tasks, professionals can use their time more efficiently and achieve better results with less stress. Translated to the context of time management, then, the 80/20 rule means that 80% of productive output comes from 20% of time spent.
Real-world examples in areas other than procurement
The 80/20 rule works in many other areas as well. Below we discuss some examples.
- Marketing strategies use the 80/20 rule to identify the most effective campaigns and channels. Often, a small portion of marketing efforts turn out to be responsible for most of the sales and customer engagement. By using these insights, marketing teams can optimize their budgets and maximize the return on their campaigns.
- Outside the business world, the 80/20 rule is also applicable, for example, to personal health choices. By adopting 20% of all good habits, such as regular exercise and a balanced diet, people can achieve 80% of the benefits of a healthy lifestyle. This concept emphasizes that you don’t have to be perfect, but you can achieve great results with small but worthwhile efforts.
- The Pareto principle is also widely applicable to the workplace in general. When employees focus on the tasks that add the most value and do not lose themselves in less important activities, productivity increases and work-life balance improves. The Pareto principle helps companies and individuals achieve their goals through focused and efficient efforts.
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Take your procurement career to the next level with Xentys
With the 80/20 rule, which of course we at Xentys apply ourselves, every experienced buyer is undoubtedly familiar. If you are a buyer and looking for a new career challenge in the field of procurement, check out our jobs page. We are a recruitment agency for technical procurement positions and always have interesting positions with salaries starting from EUR 60,000 and other attractive benefits that can boost your career. With us you will find job openings for both permanent and interim positions and new positions are added every month. For some of these, we mediate exclusively, meaning you can’t find them anywhere else on a job board. We are always looking for new top professionals, so we would love to hear from you!
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