PARETO’S PRINCIPLE (80/20 RULE)

In the late 1940s Romanian-born American engineer and management consultant, Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. Pareto later carried out surveys in some other countries and found to his surprise that a similar distribution applied.

The Pareto’s principle is a graphical tool for ranking causes from most significant to least significant. It suggests most effects come from relatively few causes; that is, 80% of the effects come from 20% of the possible causes. This can be applied to almost anything.

• 80% of customer complaints arise from 20% of your products and services.
• 80% of delays in the schedule result from 20% of the possible causes of the delays.
• 20% of your products and services account for 80% of your profit.
• 20% of your sales force produces 80% of your company revenues.

20% of systems defects cause 80% of its problems.

For instance- you have a high waste, and you have many causes for that, so you have to work, first on those causes, which are most responsible for the waste.

By this, we can separate, MOST IMPORTANT CAUSES from LESS IMPORTANT CAUSES for a PROBLEM.

So from this Paretogram, we got that by working on first 3 causes, in this case (Wrinkled Ply, Roll end and Coat off) we can reduce waste up to 64%.

Work first on these causes, and after that go for other 10 causes, which are less responsible, for waste generation (36%).

Paretogram, gives us a clean view, of most important  area, where we have to work first to solve the current problem.It also helps us to find these, most responsible causes for a problem.