DZA

Department of Management
C.U.
TQM Tools
• Pareto chart is also called a Pareto
diagram and Pareto analysis. It is named for the
Italian economist Vilfredo Pareto, who described
Pareto principle, according to which roughly 80%
of the outcomes come from 20% of the
conditions, for many events.
• A Pareto chart is a bar graph or the combination
of bar and line graphs. The purpose of using this
chart is to represent a set of data in a bar
graph chart.
 Pareto Chart Analysis and
Interpretation
• Let us learn how to make use of the Pareto chart for various applications.
• Firstly, determine the classifications you will use to arrange the items in
the bar graph.
• Choose an appropriate measurement such as frequency, quantity, cost and
time.
• Decide the time period for the Pareto chart for which the bar graph will be
drawn, For example, for a week, a month or a year.
• Assemble the new data and already existing data as per the category and
period of time.
• Do the total of the measurements for all the categories.
• Choose the proper scale for the measurements you have assembled. The
total you made in the above step will be the maximum value.
• Now for each category construct the bars along with labelling it. The
longest bar should be placed at the leftmost place and shortest at the
rightmost.
 Applications of Pareto Chart

• Pareto charts are the best chart to do the analysis of the bulk of
data. In business industries, these charts are used very often. Let
us see some of its more applications.
• For the analysis of the revenue growth of the organization with
respect to the time period.
• To choose for any specific data and work on it, in a broad set of
data available.
• To explain to other people the set of data you have.
• For the analization of population growth in a city or country or all
over the world every year.
• To check the global problems and focus on resolving the major
one.
• To check the major complaints coming from the public and resolve
them on priority.
 How do you create a Pareto chart in
statistics?
• In statistics, for any given data Pareto chart can be drawn with the
help of below steps:
Arrange the given data in decreasing order of measures (in other
words “frequency”).
Calculate the sum of measures
Determine the percentage and cumulative percentage for each
cause (category of data).
List the items on the horizontal axis of a graph from highest to
lowest
Label the left vertical axis with the numbers (i.e. frequency), then
label the right vertical axis with the cumulative percentages (the
cumulative total should equal 100)
Draw in the bars for each item
Draw a line graph of the cumulative percentages
 How does Pareto chart work?

• The primary objective of the Pareto chart is to

highlight the most important among a
typically large set of factors. In quality control,
it often depicts the most frequent causes of
defects, the highest occurring type of defect,
or the most frequent reasons for customer
complaints, and so on.
• What is a Pareto chart used for?
• A Pareto chart is a fundamental quality tool that assists us in
identifying the most prevalent defects, complaints, or any other
factor we can count and characterise or classify.

• How do you make a Pareto chart?

• In excel one can make a Pareto chart easily in two steps. First,
select the data (generally a column containing text of categories
and another with numbers. A Pareto chart then groups the same
categories and sums the corresponding numbers. Then, select
Insert statistic chart > histogram > choose Pareto. This will give you
the Pareto chart for the given data.
• .
• What is the 80/20 rule of Pareto charts?
• The 80/20 rule of Pareto charts states that
80% of the results are determined by 20% of
the causes. Thus, it is suggested that to
identify the 20% defect types that are the
reason for 80% of the defects
 Some examples from different
industries include:
• Business – 80% of the work is carried out by 20% of the
employees.
• Software Development – 80% of the logic of a program is run
using 20% of the classes or code
• Software Efficiency – 80% of the errors are caused by 20% of the
bugs. Fixing 20% of the bugs with the highest frequency should
solve about 80% of the customer issues.
• As the Microsoft ex-CEO stated, the 80-20 rule does not apply just
to features but also to software bugs.
• Health – Roughly 80% of injuries and accidents happen due to 20%
of the possible hazards.
• Crime – 80% of crimes are committed by 20% of criminals
• Sales – 80% of sales and revenue are gathered by 20% of the
customers
 Building a Pareto Chart

• To demonstrate the components and process of building a Pareto diagram,

we will use the example of a fictional business situation. Let’s assume you
want to find the occurrences of certain bottlenecks in your business
process.
• Step 1 – Decide on the category you will use to group the bottlenecks. The
categories will be different groups of bottlenecks in the workflow process.
Let’s call these bottlenecks A, B, C, D, etc.
• Step 2 – Establish which measurement is the most appropriate to measure
the grouped categories. For example, the measurement for the different
groups of bottlenecks can be the number of occurrences of the specific
bottleneck.
• Step 3 – Come up with a specific timeline which the Pareto chart will
cover. This can be one work cycle, a sprint, one full day, one week, one
month etc. For the purpose of this example, let’s assume it is one week.
• Step 4 – After you have determined the first three, you have to record or
organize your data in a table in accordance with the steps. The table will
have two columns: Bottlenecks and Number of times Bottlenecks occur.
• Step 5 – After gathering or organizing all the
data, you should put everything in an Excel
table.
• Initially, you need to find the sum of the
number of all of the different occurrences
(bottlenecks). You can do this by using Excel
summation tools or a calculator by hand.
• Your table should look something like the
table below at this point:
• Step 6 – At this point, you have to bring
together the total of all occurrences for each
respective bottleneck category. This can be
done by constructing a new, smaller table, or
by hiding the columns for “days of the week”.
After that, arrange your data from the largest
number of occurrences towards the smallest
(descending order). Your new table should
look like this:
• Step 7 – Now that you have these columns side by
side, you should calculate the cumulative
percentage of each bottleneck. In the figure
below, you can see the formula we have used on
one cell (C27). To apply the same formula to the
other bottleneck categories, you can simply drag
the formula down to the last row.
Step 8 – Select all the data set (without
the total number of occurrences
 How to Interpret Pareto Diagrams

• Now the Pareto diagram is available to you with all of

its components. A trickier issue is how to exactly
interpret the results of this chart. Drawing on what we
have discussed before on the implications of Pareto
chart analysis, this particular chart clearly shows the
bottlenecks which the company should focus more on.
• Here we can clearly see that taking care of the first two
bottlenecks: Bottleneck D and Bottleneck A will take
care of around 80% of the entire defects. The analysis
would be the same if there were more bottlenecks to
take care of, as the Pareto Rule of 80/20 is in play.
• Solution.
• The sum of cumulative percentage will always
be 100%, the Pareto chart for the
above-mentioned data will be -
• 2. Mention some examples of the 80/20 rule for different
sectors
• Solution.
• Let us consider we have 4 sectors by the name of business,
health, crime, Food. Then the 80/20 rule for them can be:
• For Business: 80% of the progress is done by 20% of the
employees.
• For Health: 80% of the bike accidents are caused due to 20%
of drivers not wearing the helmet.
• For Stock Market: 80% of the profit comes from 20% of the
stock market.
• For Food: 80% of the food is wasted by 20% of Asia's
population.
• An analysis of nonconforming shirts in a
week's production revealed the following
causes. The nonconforming shirts were
discounted according to defect and sold to
Bargain Bin Incorporated and the dollar loss
noted.

•
• The Pareto chart can be formed in a few different
ways. Figure 1 shows the basic chart with the number
of defective shirts on the vertical scale and the
different categories on the horizontal scale.
• Figure 2 shows the dollar loss on the vertical axis and
the categories as the charted values go from largest to
smallest. Figure 3 is a combination of two Pareto
charts. The left scale tracks the number of defects per
category with the bar graph, and the right scale tracks
the accumulated percent of all defects with a line
graph. It is common practice to combine a cumulative
percent chart with a percent of defects chart and also
with a dollar loss chart.
Figure 1. A Pareto chart for the example of the number of nonconforming

shirts per week with the number of defects per category per week .
Figure 2. A Pareto chart for the example showing the dollar loss
per category per week.
The aerospace firm has identified the following defect
categories for the tanks manufactured.
 Example:
Draw and interpret the following weekly mobile charger
rejection data using the run chart.
 How to create run chart
• Determine the data to be measured
• Obtain the data – collect a minimum of 10 to 15 data
points in a time sequence.
• Plot a graph with a time sequence in the horizontal
x-axis (like, hours, days, weeks) and a vertical y-axis
with measuring variables.
• Plot the data values in a time sequence
• Compute the mean/median and draw a horizontal line
in the graph
• Analyze the graph, and observe the trends and
patterns to detect special cause variation in the
process
• Solution
• Enter the weeks data in one column and
quantity in next column
• Plot a graph with weeks in horizontal x-axis,
and a vertical y-axis with quantity
• Compute median value for the quantity and
draw horizontal axis
•
• Interpret the results: From week 10 to week 17,
consecutive values are in an upward trend.
• Benefits
• Easy to identify an early change in process and
useful for analysis of the simple process.
• It is easy to draw and interpret the results
• Identify changes/ trends over time
• The run chart will depict the effects or results of
the process improvements graphically.
• Limitations
• The formation of a run chart is based on the input
values. It does not help identify unexpected or
surprise events.
• It cannot identify the stability of the process as it
does not have control limits.
• Every process will have some inherent variation.
Often, normal process variation concludes that a
trend or cycle exists in the process.
 Six Sigma
•
It is a business strategy to achieve excellence by applying
different statistical, TQM and Project Management tools. Six
Sigma originated from the field of statistics as a set of
practices designed to improve manufacturing processes and
limited defects, but its application was subsequently
extended to other types of business processes as well. In Six
Sigma, a defect is defined as any process output that does
not meet customer specifications, or that could lead to
creating an output that does not meet customer
specifications.
• The term ‘Six Sigma’ referred to the ability of manufacturing
processes to produce a very high proportion of output
within specification.
 Lean Manufacturing
• It is a way of manufacturing that increases speed and
reduces unnecessary wastes. Lean Manufacturing (also
called Toyota Production System, TPS) is a production
system inspired by the Japanese concept of kaizen (the
strategy of continuous improvement). Unlike kaizen,
Lean has a focus not only on quality control but also on
quantity control to eliminate waste and reduce costs.
• There are many definitions and viewpoints for ‘Lean
Manufacturing’, but the main goal of ‘Lean
Manufacturing’ is to eliminate waste. ‘Waste’ refers
especially to excess input materials and useless
processing steps
• The goal of ‘eliminating waste’ may also be stated
as providing exactly what the customer values for
the lowest cost of production. This will maximize
profit per unit.
• The word ‘Lean’ implies ‘cutting the fat’ or
‘trimming waste’, where ‘fat’ or ‘waste’ refer to
whatever is not valued by the customer. So
another way of expressing the ‘Lean
Manufacturing’ goal is to only use materials and
processes that add value for the customer.
 Kaizen
Kaizen (Japanese for ‘improvement’ or ‘change for the better’)
refers to philosophy or practices that focus upon continuous
improvement of processes in manufacturing, engineering,
supporting business processes and management. It has been
applied in health-care, psychotherapy, life-coaching,
government, banking and many other industries.
When used in the business sense and applied to the
workplace, kaizen refers to activities that continually improve
all functions and involves all employees from the CEO to the
assembly line workers. It also applies to processes such as
purchasing and logistics that cross organizational boundaries
into the supply chain. By improving standardized activities and
processes, kaizen aims to eliminate waste (see lean
manufacturing)
• Kaizen was first implemented in several
Japanese businesses after the Second World
War, influenced in part by American business
and quality management teachers who visited
the country.
• It has since spread throughout the world and
is now being implemented in many other
venues besides just business and productivity.
• The cycle of kaizen activity can be defined as:
Standardize an operation
• Measure the standardized operation (find cycle
time and amount of in-process inventory)
• Gauge measurements against requirements
• Innovate to meet requirements and increase
productivity
• Standardize the new, improved operations
• Continue cycle ad infinitum
• This is also known as the Shewhart cycle, Deming
cycle, or PDCA. Masaaki Imai made the term
famous in his book Kaizen: The Key to Japan's
Competitive Success.
• The main elements of kaizen
Teamwork:
• Personal discipline
• Improved morale
• Quality circles
• Suggestions for improvement