How to Apply Pareto Principle in Small Businesses

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Small business owners have defined success by quantity of distribution channels instead of the quality of distribution channels. They caught up in excitement of adding distributions channels network without calculating it would be profitable and productive for long term perspective of company. Andrew try to convinced for less number of profitable distributors instead of more in overhead supporting distributers. Due to they measured success by quantity, owners may engage in an ego issue. Small business owners compared their distributions to competitors for success and achievement. Due to such attitude, they always want to grow and expand distribution channels. He applied Pareto’s principle i.e. 80-20 rule to these distributors. It helps to realize that the majority of profit generate from minority of distribution channels. In other words, 80 percentages of profits generate from only 20 percent of distribution channels. It reminds to focus on the 20 percent that matters. Midwest company has around 800 distributors, if we applied Pareto principle only 160 distributors are profitable or might be less. Andrew’s arguments related to OM Quality Management concept. The Pareto principle applied is consistent with OM theory. Here it is applied for finding a profitable distribution channels whereas in OM, it is used for finding defects result from top categories. Basic concept of Pareto principle remains same. Small businesses have been heavily depends on a number of relationships to bring their goods and services to the market. Core network selection of a distribution channels is toughest challenge faced by small businesses over the last couple of years. Andrew focuses on structural and proper management of distribution channels also assessment of these channels to profitable for them. Andrew suggested a metric of assessment of distributor’s profitability and then measuring effectiveness of each distribution channels.

Strongest point is that selection of quality...
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