The
Pareto Chart and the 80:20 rule are useful tools to drive Continual or
continuous process improvement. If you want your business to flourish and stay
ahead of your competition then you need to stay ahead of them in all aspects of
your business. A pareto chart is one tool that you could use to help you stay
ahead of the competition. The pareto Chart will highlight the vital few areas
for you to target to tackle the bulk of your problems.
The
80:20 rule can help you identify the 20% of the causes that create 80% of the
effect allowing you to focus on those vital 20% for maximum benefit rather than
wasting your resources tackling the other 80% of the causes for minimal
benefit.
The
Pareto chart and the 80:20 rule are powerful tools to help you focus your
resources effectively for maximum benefit and are very simple tools to use.
History
of the Pareto Chart
Vilfredo
Pareto discovered his “pareto principle” whilst studying the distribution of
wealth for his works, he found that 80% of a countries land was owned by just
20% of it’s people. There is some argument as to the origin of his data
however, it is often attributed as being based on Italian data as he was an
Italian, however it is more likely that the data used was in fact from the UK.
This principle was further expanded upon by the quality Guru Joseph Juran who
applied the Pareto Principle across many industrial statistics.
By
using a quality tool such as the pareto chart and the 80:20 Rule you can drive
continuous process improvement.
The 80 20 rule is not always the right ratio, quite often we see
95 5 for instance or 60 40, however the 80 20 rule was the first ratio seen and
identified and the one that seems to fit the majority of scenarios, therefore
it is commonly used as a method to identify the vital few causes to the majority
of our issues.
Directions
for the map Pareto Chart
1. Collect
data about the contributing factors to a particular effect
(for example, the types of damages
discovered in particular style).
2. Order
the categories according to magnitude (Descending order) of effect
(for example, frequency of
damages). If there are many
insignificant categories, they may be grouped together into one category
labeled “other.”
3. Write
the magnitude of contribution (for example, frequency of error) next to each
category and determine the grand total. Calculate the percentage of the total
that each category represents.
4. Working
from the largest category to the smallest, calculate the cumulative percentage
for each category with all of the previous categories.
5. Draw
and label the left vertical axis with the unit of comparison
(for example, “Number of Damage ” from 0 to
the grand total).
6. Draw
and label the horizontal axis with the categories (for example, “Type of
damage”), largest to smallest from left to right.
7. Draw
and label the right vertical axis “Cumulative Percentage,” from 0 to 100
percent, with the 100 percent value at the same height as the grand total mark
on the left vertical axis.
8. Draw
a line graph of the cumulative percentage, beginning with the lower left corner
of the largest category (the “0” point).
9. Analyze
the diagram to indicate the cumulative percentage associated with the “vital
few”
(Using 80:20 Rule )
Identify
the Vital Few
The
whole purpose of our Pareto analysis is to identify what many call the
"Vital Few". With the effect we are looking at (Rejects, stock value,
poor customers, absent employees etc.) being caused by only a small percentage
of the population we are examining we are looking to identifying those vital few
on which we can concentrate our actions.
By
concentrating our actions on the vital few we ensure that we get the greatest
impact from our actions and the greatest return on our investment
Pareto Principle, 80 20 Rule Examples
·
80% of your rejects are caused by 20% of
the causes, so tackling this 20% will eliminate the bulk of your problems.
·
80% of the value of your stock is made
up by 20% of the quantity, so if you need to reduce your stock value to free up
cash you identify the most efficient way to spend your time.
·
80% of your profit comes from 20% of
your line items, so the remaining 80% are not as important if you have to
prioritize your production or decide which to phase out.
·
20% of your suppliers supply 80% of your
goods, so if you need to work on supplier development these are the ones to
work with first.
·
80% of your sales come from 20% of your
clients, so who do you focus on?
·
80% of time off work will come from 20%
of your employees, so you know which to spend time with.
·
80% of your time on this document will
be spent looking at only 20% of it’s content, maybe?
