Improving The Decision Making Process Trought The Pareto Principle Application

Vilfredo Pareto (1848 – 1923) was studying the inequality of welfare distribution in Italy during the nineteenth century and developed a useful tool named „the principle 80:20“, which was later adopted in many fields to explain that a small number of causes can be responsible for a large percentage of effects. The principle can be applied to indicate the priority of problem solving and determine the direction of business drivers’ development. Separating the vital few from the trivial many, the management staff can improve firm performance. This paper, in particularly links the Pareto principle postulates to the decision making techniques and proposes different points of view for improving the purchasing process in a particular firm. The firm Mix Metal is a small trader in iron scrap present on the Croatian market since 2004. In this case the Pareto principle is adopted to rationalize the purchasing process and ensure better long term sales margins. The aim of the paper is to develop several points of view from which the root causes arise and problems can be interpreted. In particularly the paper tries to find for which suppliers and which types of material, the purchasing process must be reviewed and even end. The case is developed and presented using the case study methodology.