Both Lean and Six Sigma have lots of tools which can be used for analyzing business processes – One of the most popular of these tools is the Pareto chart.

Strictly speaking the Pareto chart is not just a six sigma tool – Pareto analysis, often referred to as the 80/20 rule, is a common statistical tool used to show how a small number of issues produce a large quantity of the problems. Pareto charts are usually used during route causes analysis or decision making processes to highlight the significance of issues affecting a process.

Pareto can be applied to anything for example

• 80% of Supply Chain issues arise from 20% of your Suppliers.
• 80% of Sales Orders arise from 20% of your customers.
• 20% of Inventory account for 80% of your cost

Why use a Pareto Chart

Pareto Charts are often used in root cause analysis as they represent a very effective method of conveying causal data in a simple to produce way. For business improvement projects and as a visual management tool they can highlight to the audience which issues are causing most problems in a given area of concern – using the results from a Pareto analysis you can then effectively structure your business improvement project ensuring you can focus your efforts where it will have the most impact.

While Pareto charts are great at what they do it must be remembered that they are a decision making tool and do not generally contain detail data analysis, or associated cost of failure and can generalize issues in order to group them. However used correctly they can be an effective tool in deciding which issues to tackle first.

Pareto Charts in a process improvement environment will typically provide the order in which the issues will be addressed (note this may not be in order of the easiest to tackle!)

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