## Professional Reference Shelf

#### The Pareto Analysis and Diagram

When it is evident that there is more than one problem to be dealt with. a Pareto Analysis is another helpful tool for deciding which problems to attack first. This tool is commonly used in industry for quickly deciding which problem to attack first. The Pareto Analysis shows the relative importance of each individual problem to the other problems in the situation. Pareto Analysis draws its name from the Pareto Principle which states that 80% of the trouble comes from 20% of the problems. Thus, it helps to highlight the vital few concerns as opposed to the trivial many. The defects to investigate first for corrective action are those that will make the largest impact. As an example, let's consider the problems that the Toasty O's plant had with their product last year (See "To Market, To Market" example in Chapter 4 of SCPS). The problems were classified as follows:

 Boxes Number of Boxes A. Inferior printing on boxes (smeared/blurred) 10,000 B. Overfilling boxes (too much weight) 30,000 C. Boxes damaged during shipping 2,000 D. Inner wrapper not sealed (stale) 25,000 E. No prize in box 50,000

The data is shown graphically below:

When the bar graph has the frequencies arranged in a descending order, the resulting figure is called a Pareto Diagram. Based on the number of boxes affected, the Toasty O's plant would probably attack the problem in the following order E-B-D-A-C. But, if they reexamine the data in terms of lost revenue instead of the number of boxes affected, a different picture of the problems emerges.

 Boxes Number of Boxes Lost Revenue (\$) A. Inferior printing on boxes (smeared/blurred) 10,000 \$ 100 B. Overfilling boxes (too much weight) 30,000 \$ 600 C. Boxes damaged during shipping 2,000 \$ 7,000 D. Inner wrapper not sealed (stale) 25,000 \$ 87,500 E. No prize in box 50,000 \$ 17,500

From this graph it is clear that we can make the biggest impact on the problem situation by attacking the stale cereal problem (D) first, followed by E-C-B- A. When a Pareto Diagram is made, care should be taken to "weight" the problems using the most relevant quantity to the particular situation. In this case (and in many others) the impact on plant revenue is the key parameter. Pareto Diagrams are merely a useful, convenient way to organize and visualize problem data to help decide which of multiple problems to attack first.