Six Sigma Black Belt Study Guides

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1 Six Sigma Black Belt Study Guides 1 Powered by POeT Solvers Limited.

2 Introduction The Pareto chart is named after Vilfredo Pareto, an economist from Italy. The Pareto chart exemplifies the Pareto principle, which was emulated by Vilfredo Pareto in 1906 by charting frequency based on the assumption that the more regularly an event occurs, the more impact it has on the result. The Pareto principle states that 80% of the problems stem from 20% of the causes. The numerous instances of the Pareto principle applications that are found in real world practices has resulted in a widespread belief that the Pareto principle is a natural law, where 80% of the outcomes are determined by 20% of the inputs. Pareto established that a major proportion of the economy was commanded by a small section of the people within the economy. In the 1940s, Pareto s theory was popularized by Dr. Joseph M. Juran, who is regarded as the father of quality control. It was Dr. Juran who called the 80/20 ratio propounded by Pareto as the Pareto principle. 2 Powered by POeT Solvers Limited.

3 Objectives of a Pareto chart 1) To identify the most important issues that an organization is facing in the shortest possible time span. 2) To apply the Pareto principle in order to identify and classify the 20% sources that are causing the 80% problems. In this wake, it enables an organization to address the problems which need immediate and appropriate attention. 3) To prioritize tasks and actions which are similar and conflictive in nature, in order to achieve largest possible improvements. This enables the organization to focus its resources on the most frequent and important causes. 3 Powered by POeT Solvers Limited.

4 Construction of a Pareto chart The first step in the process of constructing a Pareto chart involves identification of the group of items or data that is to be charted and sorted on the Pareto chart. The data selected for Pareto chart should be comprehensive and solitary. It should be broken down into small measurable groups. The measurable groups in the data should not include too many items so that the bars on the Pareto chart are not too low, which makes the analysis ineffective. If a group is found to be very important it can be further broken down into smaller groups. After identifying the group, the next step is to identify the unit of measurement. The chosen unit of measurement should be such that all the items on the chart are measurable in that unit. The most common measurements used in Pareto charts include frequency, cost, and size. 4 Powered by POeT Solvers Limited.

5 The next step involves determination of the sample size or period during which measurements will be made. The sample size should be such that the final chart will comprise bars of varying heights on which a comparative analysis can be conducted. For a stable process, the optimum sample size will be a size where an increase in the number of measurements will not alter the sequence or average height of the bars. If frequency is the preferred measurement unit, the ideal number of units required for analysis will vary from 50 and above. In cases where measurements are repeated, it is advisable to keep the variables such as sample size stable. Thus, in a Pareto chart the independent variables are charted on the horizontal axis and the dependent variables are depicted on the left-side vertical axis as the heights of bars. The vertical axis and the horizontal axis of the Pareto chart are named as frequency and with the group names of the response variables respectively. 5 Powered by POeT Solvers Limited.

6 Example of a Pareto chart XYZ Services Pvt. Ltd. witnessed a sharp decline in its customer base. The marketing manager has decided to do a Pareto analysis to find out the most important reasons for the customer complaints and take immediate actions. Data received from the customer complaint register and surveys: Causes Frequency Decrease in quality 33 Increased competition 12 Increased price 21 Economic condition 17 Change in customer preference, choice 8 Lack of innovation 5 Poor customer service (post purchase) 11 Total 107 Pareto analysis using Minitab: Copy the data in the Minitab worksheet as it is given (except the Total) Select Stat > Quality Tools > Pareto Chart Select chart defects table in the dialog box 6 Powered by POeT Solvers Limited.

7 Pareto analysis using Minitab Copy the data in the Minitab worksheet as it is given (except the Total) Select Stat > Quality Tools > Pareto Chart Select chart defects table in the dialog box Select Causes and Frequency for Labels in and Frequencies in as shown below 7 Powered by POeT Solvers Limited.

8 Minitab Output Interpretation: Team decides to attack the first 4 reasons through innovative improvements as they contribute approximately 80% of the overall decline in customer base. 8 Powered by POeT Solvers Limited.

9 Conclusion Introduction Application of a Pareto chart Construction of a Pareto chart Objectives of a Pareto chart Example of a Pareto chart 9 Powered by POeT Solvers Limited.