Pareto analysis

– Most of us have heard of the 80/20 rule. In most companies 80% of profits are made by only 20% of the products. Formally this is called the Pareto Principle, which states that approximately 80% of effects come from 20% of the causes. For example, customers often complain, and most of those complaints come from a small group of the customers. From a quality standpoint, those few customers are much more important than the others. Total customer satisfaction can be greatly improved by identifying those few customers, researching the exact reasons for their complaints, and eliminating those issues. You can also use this rule in factory operations to find quality issues and improve performance. There’s a handout in the exercise files, and I’ll use it to explain Pareto analysis. In this example we’re trying to find out whether most of quality problems in a particular factory are coming from a few specific machines, or if there’s a bigger issue at hand. Now, this is what Pareto analysis looks like. You can see it’s a simple bar chart, but it helps us see results. We built this Pareto chart by looking at how many products were scrapped or reworked at each machine. Then we arranged the machines based on how many issues they had, so you’ll notice that they’re not in order from on one to 10. The machines with the most issues go closest to the Y-axis on the left, and the rest of the machines are added Our example shows that 80 of the 100 rejects happened on machine 4 and machine 3. You’ve now identified the vital few in your factory. To reduce factory rejects and improve quality, these two machines are much more important than the others. That’s the beauty of this model. It tells you exactly where to start a quality-improvement project. So, your next task it to assign a team to find the major causes of rejects at each of these two machines. They’ll do a second Pareto analysis, and create a chart of the types of defects. Defects might be caused by scratches on the product, for example, or a part that isn’t connected properly. The focus now is to eliminate the two or three most common defects. For example, the team may find that most scratches are caused by operator errors. Refresher training in proper handling techniques may eliminate this problem right away. Providing this training every quarter might eliminate scratches permanently. You can use Pareto analysis just about anywhere at work, not just to manage quality, for example, you might have 10 different assignments right now. Ask your boss which ones are most important to the success of your company. Next week, collect data on how much time you spend on each one. Are you spending 80% of your time on the two or three most important assignment? If not, it might be time for an adjustment. If not, it might be time for an adjustment.