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Have you heard of the 80/20 Rule? This Rule is based upon the Pareto Principle. Watch this two-minute video (Links to an external site.) to see how the Pareto Principle applies not only to business, but also to your personal life.
The Pareto Principle is used for quality control and focuses on the 80/20 Rule. A Pareto Chart Analysis visually identifies the most important factors, the most occurring defects, or the most common problems. We call these “the vital few.”
This Pareto Principle, or 80-20 Rule, says 80% of the effects stem from 20% of the causes. Although the actual numbers may be different from case-to-case, the Pareto Principle is a guiding principle used in business for the following:
- Customer Complaints (e.g., 80% of the complaints come from 20% of the customers)
- Management (e.g., 80% of the results come from 20% of the group)
- Sales (e.g., 80% of the profits come from 20% of the products)
- Quality Management for identifying the most important causes for defects (e.g., 80% of the problems come from 20% of the causes)
Refer to the chart pictured below.
- A Pareto Chart is a bar chart with values ordered from largest to smallest with a superimposed line graph showing the cumulative total.
- The line graph uses the secondary axis (the axis on the right side) with values between 0% and 100%.
- In a Pareto Analysis, you simply look at where the line graph crosses 80%.
- The categories to the left of that point are your “vital few” or most significant factors.
Assume you are a “quality analyst,” and you have been asked to develop a Pareto Chart to identify the issues causing the high rate of returns for your shoe company’s work boots. You can download the Pareto Chart Template from this link.
Prepare your Pareto Chart using the template. Use the following return reasons and the number for each return in your Chart. Then identify the vital few that you need to investigate and resolve.
- Separating soles, 120 returns
- Defective leather, 22 returns
- Steel toe metal too small, 88 returns
- Size wasn’t correct, 18 returns
- Too tight, 31 returns