What is the Pareto Principle (80/20 rule) and how is it applied to inventory management?

The Pareto Principle, or 80/20 rule, states that approximately 80% of effects come from 20% of causes. In inventory management, this often means that a small proportion of items (the top 20%, or "A items") accounts for the majority of value or consumption (around 80%).

Applying the Pareto Principle to your inventory helps you identify the most strategic products—those that require more rigorous forecasting, closer monitoring, and higher service levels—while managing less critical items with simpler methods.