Applying the 80 / 20 Rule to Purchasing
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Applying the 80 / 20 Rule to Purchasing
The 80 / 20 rule , also known as the Pareto principle , simply means that roughly 80 percent of the effects of anything you might be doing come from 20 percent of the causes . For example , 80 percent of your food , medical , office or janitorial spending is likely generated by about 20 percent of the most frequently needed supplies or services . Unsurprisingly , this simple little principle gives great insight into how your community works and also offers some pointers on how to better manage your spending .
Use the 80 / 20 rule
“ When searching for savings opportunities , it is wise to sort your item master file using the Pareto principle , also known as the 80 / 20 rule ,” says John Mateka , MBA , MHA , interim director of materials management for Florence , S . C . -based McLeod Health .
The Pareto principle , named after economist Vilfredo Pareto , describes an unequal relationship between inputs and outputs . The “[ This principle ] is very applicable to rule states that 20 percent the supply chain – roughly 20 percent of the invested input is responsible for 80 percent of your items comprise 80 percent of of the achieved results , your spend .” according to Investopedia .
Mr . Mateka shared the following tip with Becker ’ s Hospital Review : “[ This principle ] is very applicable to the supply chain – roughly 20 percent of your items comprise 80 percent of your spend . When sorting products in descending total dollar value , your top spend items will reveal themselves . Supply chain leaders should spend time ensuring competitive pricing and utilization per volume of service for the top 20 items . This will save time and deliver the most benefit .” 1
— John Mateka , interim director of materials management , McLeod Health
For more information contact : Sarah Daly at 518-867-8383 ext . 160 or by email at sdaly @ leadingageny . org .
Value First , Inc . is a Group Purchasing Organization ( GPO ) owned by LeadingAge and twenty-five of its affiliates . As a GPO that ’ s committed to your mission , Value First leverages the buying power of LeadingAge members across the country to get the best pricing on a comprehensive array of high-quality products and services .
1
Bean , Mackenzie ( 2016 , Oct . 18 ) Becker ’ s Hospital Review Supply Chain Tip of the Week , Retrieved from http :// www . beckershospitalreview . com / supply-chain / supply-chain-tip-ofthe-week-use-the-80-20-rule . html
17 Adviser a publication of LeadingAge New York | Fall 2016