The Pareto Principle states that, for many scenarios, approximately 80% of the effects come from 20% of the causes.
The principle was suggested by management consultant Joseph Juran and named after the Italian economist, Vilfredo Pareto. Pareto discovered that 80% of the land in England was owned by 20% of the population. The 80:20 ratio is an approximation and sometimes the ratio may be closer to 80:30 or 70:25.
The principle is meant to exemplify the large disparity between effort and result, not specifically the 80:20 ratio.
So how does The Pareto Principle apply to order picking?
60% to 80% of a warehouse’s throughput results from 20% to 30% of its SKUs. Identifying and targeting these SKUs are where order picking performance can be drastically improved. Investigating the metrics (size, weight, throughput, value) helps determine the appropriate storage medium for each SKU.
When examining picks, on average, 80% of the throughput will come from 20% of the SKUs. These are the SKUs that are NOT ideal for carton flow. Often these high throughput SKUs are best picked from pallets.
The optimal carton flow SKUs are within the remaining 80%, which also includes SKU’s that are so slow-moving, that basic shelving is the best storage medium, based on both cost and storage density. Would you be surprised to hear that the SKU’s targeted for carton flow are the 20% of this remaining lion’s share?
Once the proper SKUs and storage mediums are identified, a warehouse layout can be optimized. An aisle of pallet pick bays of the fastest moving SKUs is fairly typical, as is an aisle of carton flow bays or a dedicated pick module. The downside is that a picker must walk BOTH aisles in order to pick a complete order.
The goal of the Pareto Bay is to combine both pallet storage and carton flow into one aisle that optimizes SKUs not only on throughput but also on frequency.
Again, 20% of a warehouse’s SKUs account for 80% of their picks. However, these are not necessarily the same 20% that account for the throughput. The beauty of the Pareto Bay is, it doesn’t matter.
Storing pallets on the floor with one level of carton flow above allows a warehouse to increase its SKU density per bay by 500% on average. By combining these two storage mediums into one aisle, the pick path for these Pareto SKUs can be shortened by half.