![]() One of its obvious applications is in inventory management where the cost and the risk involved is higher than in other operations. The Pareto Principle is used in business in several forms. The warehouse manager can buy them in bulk quantities, run sample-based quality checks and maintain average stock levels to avoid stock-out situations. The ‘B’ and ‘C’ category of inventory require inventory control but not to the level of ‘A’ grade inventory. Also, a thorough process of procurement based on bids from multiple vendors, quality assurance and records management would have to be followed for these products. This helps reduce the loss of stock due to theft or pilferage, damage due to external conditions or even obsolescence due to negligence. Given this situation, it is easier for warehouse managers to create tighter inventory management controls for engines. The rest of the inventories will occupy the remainder of 20% of the stock cost. If a quick number-crunching exercise is carried out, it would show that 80% of the airline’s stock cost is made up of engine costs. Of all the inventory that the airline owns, engines are the most expensive of the lot while their quantity is minimal. To ensure smooth operation, Acme Airlines also has a backup inventory of airplane engines, landing gear, screws, bolts and so on. Let’s take the example of Acme Airlines which has several airplanes. The Pareto principle in inventory management In other words, warehouse managers can double down on the inventory management process for A-grade items which bring in 80% of the revenue.
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