What do you understand by Pareto Principle and why it is called the 80/20 rule?

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**Pareto Principle**, also known as the **80/20 rule**, states that approximately 80% of effects come from 20% of causes. In a business context, it means that a small proportion of items or efforts typically account for the majority of results.

For example, 20% of customers may contribute to 80% of sales, or 20% of inventory items may account for 80% of the total inventory value.

It is called the **80/20 rule** because it quantifies the observation that the relationship between inputs and outputs is consistently unequal — a vital few causes (20%) produce the majority of results (80%), while the trivial many (80%) produce only a small portion of results (20%).

This principle is applied in inventory management through **ABC Analysis**, where items are classified into A (high value, few items), B (moderate), and C (low value, many items) categories to focus control efforts where they matter most.