This is named after famous economist Vilfredo Pareto who noted that the wealth of a nation is controlled by only a few people. Pareto Rule/Law is commonly referred to as "80/20" rule, as it is assumed that 20% of causes determine 80% of problems in most of the situations. Putting in simple words, 20% of action account for 80% of results. This 80/20 ratio is not fixed one. It is only a convenient rule of thumb and nor should it be considered immutable law of nature.
Applying "80/20" thumb rule to different fields, including manufacturing, it is possible to highlight the most important among a typically large number of factors. Dr. Juran has summarised these as" vital few and trivial many". Quite often, addressing 'vital few' helps in eliminating smaller problems at the same time. Thus one is able to estimate and establish the benefit delivered by each action, select most effective action/s that delivers an optimum benefit and priorities accordingly.
Where to Use: Pareto chart can be effectively used in the in areas like rejection, delivery, rework, complaints, accidents, administration, costing, efficiency, conservation of materials and energy.
How to Use: A Pareto Chart may be created based on different causes such as machine, operator, materials, manpower or based on effect such as defect, deviations, non-conformities, accidents, complaints. Steps for creating the Pareto Chart are as below:
a. Decide the basis of categorization or classification e.g. shifts, type, nature of complaints etc.
b. Select the items to be analyzed
c. Prepare check-sheet for data collection
d. Decide units of measurement and their scale
e. Decide data time frame for uniformity and comparision e.g. week, month, quarter
f. Calculate total the occurrence of each item for the period measured
g. Plot the factors on x-axis
h. Plot total value factors on the y-axis of chart paper
i. Each total will be represented by the length of a vertical bar