# What is Pareto Analysis

## What are Pareto analysis and ABC analysis?

The Pareto analysis named after Vilfredo Pareto (1848 - 1929) is often equated with the 80/20 rule, the so-called Pareto principle. This means that in many situations 80% of the effect is caused by only 20% of the factors involved. The Pareto diagram visualizes the uneven distribution of the factors. With the help of the Pareto analysis you can set the right priorities. The Pareto analysis is an instrument for finding, documenting and presenting priorities. The Pareto diagram graphically shows the most common causes of problems. The largest bottleneck is visualized using the Pareto diagram. Basically, the Pareto analysis does not provide a direct problem solution, but is an instrument for determining problems.

### Areas of application of the Pareto analysis

A Pareto analysis can always be used when the causes of an effect can be quantified. There are no restrictions with regard to the industry. The Pareto analysis can be used in the production as well as in the service sector. In addition to occurring problems, desired effects can also be analyzed with the help of the Pareto diagram. The Pareto diagram is used wherever there is a need to visualize a weighting between grouped data. The arrangement of the bars in the result of the Pareto analysis provides information on which data group causes the highest proportion of problems and should be given priority.

You can create a Pareto diagram "automatically" with statistical software such as Minitab or SPSS or "by hand" e.g. in Excel or on a flipchart. You can use a Pareto diagram, for example, in the following situations:

• Projects to reduce errors in production
• Customer feedback / complaint management - evaluation of the numbers
• Customer surveys - evaluation of the numbers
• Employee surveys - evaluation of the numbers
• Online usage - evaluation of the numbers
• Use of the service - evaluation of the numbers
• Production - evaluation of the numbers
• Evaluation of error statistics - evaluation of the numbers
• Evaluation of statistical numbers in general - evaluation of the numbers
• Continuous improvement projects (CIP)
• Six Sigma projects

The Pareto diagram can be used wherever medium and large amounts of data have to be weighted.

### Pareto analysis & ABC analysis - how are these analysis methods linked?

The ABC analysis is the standard application of the Pareto principle. In materials management, it represents a clear value criterion for classifying articles according to consumption, requirement or inventory value. For those responsible in purchasing and warehousing, it is practically impossible for an assortment of often many thousands of articles to give all items the same "economic attention " to dedicate. The model therefore ranks articles according to their value. Activities can thus be directed to areas of high economic importance, because ...

• Approx. 15% of the assortment items make up - cumulatively - approx. 70% of the value volume (sales, inventory, etc.). These are the A positions.
• Approx. 35% of the assortment items make up - cumulatively - only approx. 20% of the value volume (sales, inventory, etc.). These are the B positions.
• Approx. 50% of the assortment items make up - cumulatively - only approx. 10% of the value volume (sales, inventory, etc.). These are the C positions.

### Benefits and goals of the Pareto diagram

The benefit of the Pareto diagram lies in its concentration on the essentials: you can focus on the problems that have the greatest potential for improvement and on the factors that have the greatest influence on the desired effect. Therefore, the Pareto diagram is often used in the context of projects for process optimization and / or quality improvement and is used to provide a weighting of possible causes on the basis of numbers, data and facts. The most important thing is the presentation as a table. This makes it much easier to grasp and assess relationships (especially with larger amounts of data). This helps in deciding which points to focus on. Each error collection map should be presented as a Pareto diagram for in-depth discussion. You can also use the focus using the Pareto diagram for other activities in companies (e.g. CIP projects, etc.).

### Characteristics of Pareto charts

• Data organized by category
• The height of the bars represents the relative importance of the respective factor.
• The bars are arranged in descending order from left to right.
• The bar with the highest value is on the far left and identifies the biggest problem.
• The vertical axis shows the sum of all results (and not the height of the highest value!).

### Practical example from the field of production

In a production facility for water pumps, the final inspection increasingly reveals faulty pumps. The responsible production manager, Master Huber, arranges for the errors occurring in the individual assemblies to be recorded using an error collection card. In the first round, the number of errors per process step is collected for a week.

#### Error collection card week 1:

On the basis of the errors recorded with the error collection card, Meister Huber then creates a Pareto diagram with the aid of the Pareto analysis template created:

Master Huber presents the diagram to his shift supervisors in the morning production meeting. The decision is made to record the errors again the following week, this time in the assembly of the gearboxes, since this is where most of the errors occurred. In this second run, the individual errors on the pump gears are recorded:

#### The following Pareto diagram results from this data:

In the next meeting with his shift supervisors, Master Huber presents the new Pareto diagram: The most common error on line 5 is dirty gears. Master Huber asks his shift supervisors if they have any idea how this error can be permanently eliminated. As an immediate measure, the gear components are blown out with compressed air before assembly and the supplier is informed of the accumulated contamination with chips. This should also intensify the cleaning of the components after drilling and milling. Another Pareto analysis is carried out after a week.

#### Pareto diagram:

The number of dirty gears has decreased significantly. Overall, the total number of errors has decreased by almost 55%. In the gearbox area, the wrongly used gears now have the greatest number of errors and therefore the highest priority. Since the group cannot clearly identify the cause of this error, shift supervisor Niederberger suggests one Ishikawa analysisperform. Some particularly experienced employees who know the process very well should be involved. The possible causes were determined using the Ishikawa diagram. Solutions were developed and implemented on this basis. In order to check the effectiveness of the solutions, Master Huber has again recorded the errors occurring in the individual components with the help of the error collection cards. It is necessary to consider the entire pump because the measures taken can potentially affect all other components. With the collected data, the next Pareto chart is created.

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