Pareto Principle as a Phenomenon in Inventory Management

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Pareto Principle as a Phenomenon in Inventory Management

The Pareto principle is an essential phenomenon in inventory management. It is so because it allows companies to understand that various parts of their inventory deserve more attention because they are more significant than others (Nemtajela & Mbohwa, 2016). Jacobs and Chase (2014) explain that this principle is a basis of the ABC inventory classification that divides inventory items into three categories according to their importance. Thus, it is reasonable to consider San Miguel, a beer-producing corporation, to understand how the given principle is applied to inventory planning and accuracy.

Beer production is a complex process that implies a few steps and numerous inventory items. Eddings (2019) states that all of them are equally significant, but one can mention that water is an A item with the highest measure of importance. Thus, the company should control the quality of water and make sure that it is available when necessary. At the same time, hops, barley, and yeast are B items. They are also essential, but the company can order them in advance and store them in appropriate facilities. Finally, packaging elements, including bottles, labels, caps, and boxes, are C items because they are less significant for the production even though they represent a more substantial part of the company inventory.

Thus, the classification above has demonstrated how San Miguel can deal with its inventory planning. It is necessary to distribute its attention and effort among various inventory items appropriately to contribute to continuous production. The company should also increase its inventory accuracy with the help of a few steps. Firstly, it is possible to limit access to the storeroom, which will minimize the unauthorized use of inventory (Jacobs & Chase, 2014). Secondly, it is suitable to invest in cycle counting to monitor inventory on a real-time basis. Thus, the information above shows how it is possible to benefit from the Pareto principle.

References

Eddings, B. (2019). Is there a most important ingredient in beer? The Spruce Eats. Web.

Jacobs, F. R., & Chase, R. (2014). Operations and supply chain management (14^th ed.). McGraw-Hill Education.

Nemtajela, N., & Mbohwa, C. (2016). Inventory management models and their effects on uncertain demand. Proceedings of the 2016 IEEE IEEM, 1046-1049.

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