Pareto principle or famously known as 80-20 principle is used by organizations in different domains. The origin of Pareto principle is mainly from the Quality perspective. This principle helps in many cases corner the failure cases in several scenarios.
If we are considering Electrical Domain, 80% cost of the Bill of Material come from 20% of the components. This is very useful analysis when engineers world try to do cost reduction analysis and helps to categorize the bill of material based on cost. One simple view of the Pareto chart is from the below graph where the bard indicate the price of the components. It is at engineers discretion to categorize the elements like passive, active, ICs, Power, etc., so that they got a clarity on the costing involved.
From the business perspective, especially, the analysis of customers, this 80-20 rule can be used. Most of the business customer support executives use this rule to find out the customer behavior and spending. Some studies say that for business, it is the repetitive customers who bring revenue. Applying the Pareto rule there, 20% of the loyal customers bring 80% of the revenue. This gives business development engineers a view on where to focus w.r.t customers.
Similarly, the same Pareto rule can be used in the Manufacturing industry. The % of defects and the amount of delays that care caused by these defects can be categorized by this Pareto Analysis. this helps to identify the deviations and take action quickly.
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