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An Introduction to 80/20 February 27, 2014 As presented by Joe Hahn

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An Introduction to 80/20 February 27, 2014 As presented by Joe Hahn. What is 8020?. Also called “Pareto Analysis” Discovered by Vilfredo Pareto in 1897 80% of the output comes from 20% of the input Consider it a rule of nature

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slide1

An Introduction to 80/20

February 27, 2014

As presented by Joe Hahn

what is 8020
What is 8020?

Also called “Pareto Analysis”

Discovered by Vilfredo Pareto in 1897

80% of the output comes from 20% of the input

Consider it a rule of nature

Put simply … a few things are critically important, while the vast majority of things are worthless

the premise of the 80 20 principle
The Premise of the 80/20 Principle

Transaction activity, product variation, customer multiplicity, and complexity are the root cause of all overhead cost

20% of the items in any uniform group will drive 80% of it

Success comes from eliminating the complexity and focusing on the core products and markets

Treat them differently

use 80 20 to study every aspect of your business
Use 80/20 to study every aspect of your business

Products

Customers

Suppliers

Inventory

Product Cost

Sales Force

Geographic Distribution

Anything you want to study

slide5
So…

80/20 is the art of doing a few things spectacularly well…at the chosen expense of the rest!!!

you are better off than 98 of all americans if
You are better off than 98% of all Americans IF…

You finish high school

You have a job, any job

You get married and stay married

You have no credit card debt

want your children to be in the top 10 of all students
Want your children to be in the top 10% of all students?

Make sure they get enough sleep

Make sure they eat properly

Make sure they show up for school

Make sure they pay attention

Make sure they do their homework

rule of 72
Rule of 72

72/interest rate = number of years for your money to double

$1,000 invested today at 2% is $2,000 in 2044

$1,000 invested today at 12% is $64,000 in 2044

quartile report
Quartile Report

Quartile Analysis

Approximately half of our effort supports 96% of our

Business. The other half supports 4%.

absolute rules vs classic arguments
Absolute Rules vs Classic Arguments

Absolute Rules:

Not every customer is a good customer!

We make much more money on our biggest customers than we think we do…and lose much more on our smallest ones than we think we do.

Classic Arguments:

“The small customers of today are the big customers of tomorrow.”

“If we get rid of the little customers, we have nothing to fall back on if we lose a big one.”

“Some big customers buy small products and vice versa.”

four steps to 80 20
Four Steps to 80/20

Weed the Garden

Simplify products, customers and processes

Separate Tomatoes from Pumpkins

Separate unlike businesses

Give the Plants Only the Water They Need

Apply the minimum number of resources needed to support the critical few (the 80’s)

4. Harvest Efficiently

Simplify and streamline methods and transactions for the 80’s

the classic prescriptions
The Classic Prescriptions
  • YES, BUT
  • MINIMUMS
  • VISA
  • RESPONSE TIME DIFFERENTATION
  • YOUR IMAGINATION
slide15

Mirror, mirror on the wall …which is the greatest tool of all?Product Line Simplification,by far, and its close friend,CUSTOMERSIMPLIFICATION

report card
REPORT CARD

Is your service line “boxed?”

Are policies implemented to drive boxed services?

Has a specials policy been defined and implemented?

Are the customers “boxed?”

Are policies implemented to drive the sales of “boxed” customers?

Have key account and raving fans programs been established?

Have our processes been set up to maximize the efficiency on key core services?

Is the business fully segmented?

Are business processes simplified?

Are key leaders / “winning” people in place?

Do we understand the 80/20 market drivers?

Do we clearly know our three year objective?

benefits of 80 20
BENEFITS OF 80/20
  • Your best customers are much happier
  • Your quality is better
  • Your delivery performance is better
  • Your costs are lower
  • You have fewer, better, happier employees
  • You have better growth
  • You make more money
  • You don’t work as hard
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