Visit Pareto principle, or 80/20 law, is a rule of thumb which states that, in most situations, 80 % of effects come from 20 % of causes. This principle was originally formulated by the Italian economist Vilfredo Pareto, who observed that 80 % of wealth was held by 20 % of the population. It was later popularized in the field of quality by Joseph Juran.
In-depth definition : In the context of the’Operational Excellence and Industrial Engineering, The Pareto method is an essential analysis and decision-making tool. It enables us to identify and prioritize root causes ( 20 % reviews) that generate the majority of problems, waste (Muda), or delays. The aim is not to solve everything, but to focus on Continuous Improvement (KAIZEN) where the return on investment will be greatest. It is often represented graphically by a Pareto chart, which combines a histogram (frequency of problems) and a cumulative curve (percentage of effects covered).
Key applications of 80/20 in industry
The Pareto principle applies to all areas of the Industrial Performance :
1. Quality and defects
- Application: 80 % of non-conformities or scrap are caused by 20 % fault types (or 20 % machines, or 20 % operators).
- Action: The Quality and Industrial Engineering uses a Root Cause Analysis (RCA) on the small number of major defects. By resolving these 20 % causes, the company achieves a massive and rapid impact on the non-quality rate (one KPI essential).
2. Maintenance and OEE
- Application: 80 % of downtime (indicated by the Availability in the TRS) are due to 20 % failure types (for example, the failure of a critical component or a Bottleneck).
- Action: The efforts of Preventive Maintenance or the installation of sensors IoT for the Predictive Maintenance are concentrated on this small percentage of critical machines or breakdowns, maximizing the impact on production time.
3. Inventory Management and Supply Chain
- Application: 80 % of inventory value (or 80 % of order volume) comes from 20 % references (the A items of the ABC analysis).
- Action: Inventory management, purchasing strategy and the implementation of Pull flow (Kanban) are hyper-rationalized for these 20 % high-value items, while simpler management is applied to the remaining 80 %.
The PDCA Cycle and Pareto
The Pareto method fits in perfectly with the Planning (Plan) cycle PDCA (Plan-Do-Check-Act) :
- Plan (Prioritization) : Use data analysis (Big Data via the MY) to identify the vital group of causes (the 20 %) responsible for the problem.
- Do (Solution): Implement the solution on these specific causes.
- Check : Measure the impact. If action on the 20 % has solved 80 % of the problem, the performance gain is validated.
- Act (Standardization) : The solution is standardized, and the team can then run the Pareto analysis again on the remaining 20 % problems (which become the new 100 % for the next analysis).
Conclusion: Efficiency and Focussing
The principle of Pareto is proof that when it comes to performance, efficiency is more important than quantity. It enables small and medium-sized enterprises (SMEs) to keep their focus and focus efforts where value is created solving a few key problems that improve the majority of KPI. It's the practical guide for any team manager looking to guarantee a Series Production reliable and cost-effective.