After 10 years and two recessions, Vilfredo Pareto’s principle has had a rocky history with the job shop. The Italian economist discovered that roughly 80 percent of the effects come from 20 percent of the causes. In business, this has come to mean that 20 percent of customers provide companies with 80 percent of sales.
For years the 80/20 rule has helped companies grow. Some job shop managers found that if they focused on that 20 percent of work orders that produced 80 percent of revenue, they could develop standard procedures and base lean manufacturing and other improvement initiatives on the work that drove so much revenue.
But the Great Recession revealed the 80/20 rule’s inherent danger. On the sales end, the rule may lead to limiting the number of customers and the industries they come from. A shop may have only several major customers from one or two industries, and it’s easy to understand why. Having a few major, reliable customers makes it easier to run and grow a business. A small number of customers limits the variety of work on the floor, which in turn makes it a little easier to standardize and drive manufacturing efficiency. For sales reps, a few large accounts also can be more profitable than going after numerous small orders.
The recession forced many job shop managers out of their comfort zones. To survive, they had to take on myriad small orders from various industries, each having different demands and expectations. When businesses closely tied to only a few sectors--like automotive--started stumbling, people questioned the nature of the Pareto Principle: For job shops, is the 80/20 rule good practice or just an unfortunate habit worth breaking?
