The Pareto principle, or the 80/20 rule, is a tool used in procurement to identify that approximately 80% of an organisation's spend is typically with 20% of its suppliers. Applying this principle helps in:
* Identifying Strategic Suppliers:Recognising which suppliers account for the majority of spend allows organisations to focus on managing and nurturing these key relationships.
* Optimising Supplier Relationships:Understanding spend distribution can highlight opportunities to renegotiate terms, consolidate suppliers, or adjust sourcing strategies for better efficiency and cost savings.
Exact Extract from Study Guide:
"The Pareto Principle is used to identify that 80% of spend is typically with 20% of suppliers, enabling procurement to focus on strategic supplier management and optimise commercial relationships."