We were able to taste some great wine and gain some knowledge at the annual Ctuit Users Conference in Napa Valley. One of the most interesting sessions was Pat Darling’s presentation on the Pareto Principle, also known as the rule of 80-20. Named after an Italian economist who surmised that 80% of Italy’s land was owned by 20% of the population; the principle dictates that 80% of the effects come from 20% of the causes. What was discussed was applying this principle to weekly operational control systems in order to yield the desired results while reducing administrative time.
Looking at thousands of client databases for inventory and purchasing patterns, it became clear that 80% of the inventories were made from 20% of the purchases, and 20% of the ingredients accounted for 80% of the cost of goods. So what? Well for anyone taking weekly inventories and that should be all of you; this means only counting 20% of your inventory weekly and doing full inventories at period end. Sounds good right? By leveraging this principle, we allow 20% of our inventory to represent our cost of goods and since we see the same principle in purchasing, it allows us to represent the entire cost of goods.
Well, what about the other 80%? We still need to account for this inventory as it sits on our shelves and represents dollars spent. Establishing a baseline for this 80% of your inventory is easy as it’s made of up slow-moving product with little to no fluctuations. Simply use your period end inventories to establish these averages. This way our total weekly inventories will be consistent with the period end and allow for analysis when needed, and now we are gaining 80% of the savings for 20% of the cost.
And since 80% of our menu is made up of 20% of our ingredients, we can leverage this principle into our recipes as well. By focusing on the key ingredients on each plate and not getting caught up in the minutia of garnishes and seasoning, we can get 80% of the results with 20% of the effort. We can all agree that more money for less work is always the goal and by looking at the big picture we can find ways to achieve this. So what are you going to do with your 80%?