Pareto Charts as Total Quality Tool

The Pareto (pah-ray-toe) chart (see Figure 15.1) is a very useful tool wherever one needs to separate the important from the trivial. The chart, first promoted by Dr. Joseph Juran, is named after Italian economist and sociologist Vilfredo Pareto (1848-1923). He had the insight to recog­nize that in the real world a minority of causes lead to the majority of problems. This is known as the Pareto Principle. Pick a category, and the Pareto Principle will usually hold. For example, in a factory you will find that of all the kinds of problems you can name, only about 20% of them will produce 80% of the product defects: Eighty percent of the cost associated with the defects will be assignable to only about 20% of the total number of defect types occurring.² Examining the elements of this cost will reveal that once again 80% of the total defect cost will spring from only about 20% of the cost elements.

Charts have shown that approximately 20% of the pro­fessionals on the tennis tour reap 80% of the prize money and that 80% of the money supporting churches in the United States comes from 20% of the church membership.

All of us have limited resources. That point applies to you and to me, and to all enterprises—even to giant corpora­tions and to the government. This means that our resources (time, energy, and money) need to be applied where they will do the most good. The purpose of the Pareto chart is to show you where to apply your resources by distinguishing the significant few from the trivial many. It helps us establish priorities.

The Pareto chart in Figure 15.1 labels a company’s cus­tomers A, B, C, D, E, and all others. The bars represent the percentages of the company’s sales going to the respective customers. Seventy-five percent of this company’s sales are the result of just two customers. If one adds customer C, 90% of its sales are accounted for. All the other customers together account for only 10% of the company’s sales. Bear in mind that “all others” may include a very large number of small customers. Which customers are the ones who should be kept happy? Obviously, A, B, and perhaps C are the most critical. This would suggest that customers A, B, and C are the company’s core market and all the other customers rep­resent a marginal business. Decisions on where to allocate resources should be made accordingly.

The Pareto chart in Figure 15.2 shows bars representing the sales of a particular model of automobile by age group of the buyers. The curve represents the cumulative percent­age of sales and is keyed to the y-axis scale on the right. The manufacturer has limited resources in its advertising budget, and the chart reveals which age groups are the most logical choice to target. Concentrating on the 26 to 45 age bracket will result in the best return on investment because 76% of the Swift V-12 buyers come from the combination of the 36 to 45 and 26 to 35 age groups. The significant few referred to in the Pareto Principle are in the 26 to 45 age group. The insignificant many are all those under 26 and over 45.

1. Cascading Pareto Charts

You can cascade Pareto charts by determining the most sig­nificant category in the first chart, making a second chart related only to that category, and then repeating this as far as possible, to three, four, or even five or more charts. If the cascading is done properly, root causes of problems may be determined rather easily.

Consider the following example. A company pro­duces complex electronic assemblies, and the test depart­ment is concerned about the cost of rework resulting from test failures. It is costing more than $190,000 per year, and that amount is coming directly out of profit. The depart­ment formed a special project team to find the cause of the problem and reduce the cost of rework. The Pareto chart in Figure 15.3 showed them that about 80% of the cost was related to just five defect causes. All the others, and there were about 30 more, were insignificant—at least at that time.

The longest bar alone accounted for nearly 40% of the cost. If the problem it represents could be solved, the result would be an immediate reduction of almost $75,000 in re­work cost. The team sorted the data again to develop a level 2 Pareto chart, Figure 15.4, to focus on any part types that might be a major contributor to the failures.

Figure 15.4 clearly showed that one type of relay ac­counted for about 60% of the failures. No other part fail­ures came close. In this case and at this time, the relay was the significant one, and all the other parts were the insig­nificant many. At this point, another team was formed to analyze the failure modes of the relay in order to determine a course of action for eliminating the relay problem. It was determined that there were a number of failure modes in the relay. They were plotted on the Pareto chart shown in Figure 15.5, which immediately revealed that 66% of all the failures were associated with one failure mode. The sec­ond longest bar in Figure 15.5 represented another mani­festation of the same root cause. The relay contacts were not switching on at all (longest bar) or were not switch­ing on completely (next longest bar). With this information known, the relay contacts were carefully examined, and it was determined that the relays were being damaged at in­coming inspection where they were tested with a voltage that was high enough to damage the gold plating on the contacts. Changing the incoming test procedure and work­ing with the relay vendor to improve its plating process eliminated the problem.

Earlier in this chapter, we implied that although a particular problem might be insignificant at one point in time, it might not stay that way. Consider what happens to the bars on the cascaded charts when the relay contact problem is solved. The second longest bar on the chart in Figure 15.3 clearly becomes the longest (assuming it was not being solved simultaneously with the relay problem). At this point, more than $100,000 a year is still being spent from profit to rework product rather than making it prop­erly in the first place. The cycle must continue to be re­peated until perfection is approached.

The next cycle of Pareto charts might look like those in Figure 15.6. Starting at the top, we see the following points:

1. Miswires (wires connected to the wrong point or not properly attached to the right point) account for 40% of the remaining rework cost.
2. Wires connected with hand-wrapping tools represent more than 70% of all miswires.
3. Of the hand-wrap defects, more than 65% are caused by operator error.
4. Of all the operators doing hand-wrap work, operators 33 and 28 contribute more than 80% of the defects.

Attention must be given to those operators in the form of training or, perhaps, reassignment.

The third Pareto chart cascading would break down the Wrong Part problem. For example, perhaps Part abc is mistakenly substituted for Part xyz on a printed circuit board. The cycle may be repeated over and over, each time dealing with the significant few, while ignoring the trivial many. Eventually, perfection is approached. A few com­panies are getting close with some of their products, but most have ample opportunity for significant improvement. One need not worry about running out of improvement possibilities.

Source: Goetsch David L., Davis Stanley B. (2016), Quality Management for organizational excellence introduction to total Quality, Pearson; 8th edition.