“Pareto principle helps to prioritise the actions using the 80:20 principle”
In this case study, we’ll explore how Pareto principles can be used to reduce write-off in a warehouse within a pharmaceutical manufacturing company.
History:
The theory behind the Pareto Chart originated in 1897 when the Italian economist Vilfredo Pareto created a formula representing the uneven distribution of wealth. This came to be known as the 80-20 rule.
Business Purpose:
Most improvement starts with the simple and powerful tool of the Pareto principle. It is the most effective way to define and scope a problem. It helps to:
- Prioritize the key factors based on the frequency of occurrences or impact.
- To identify the top contributors for the given focus area.
Explore Pareto using the following Types:
- Pareto by frequency of occurrences
- Pareto by impacted value
- Pareto with in pareto
- Pareto by the impact of solutions
Case Application:
1. Pareto for Write-off Mitigation
In this pharma company, we conducted a DMAIC project to mitigate write-off stocks. We need to understand it by the function who were responsible for it.
Here are the supporting details for the DMAIC project [i.e., the steps that were followed]:
- Collect historical data of pending write-off at warehouse location.
- Stratify the data regarding pending write-offs by functions.
- Follow the Pareto creation rules in excel (mentioned below), or another software, to generate output.
Steps to generate a Pareto Chart in Excel:
- Populate the data in two columns – the first column with the function name, and the second column with the sum value of pending write off against each function.
- Select the range of data in Excel.
- From the Insert tab, in the Charts group, click the Histogram symbol.
- Click Pareto. Result: …
- Enter a chart title.
- Click the ‘+’ button on the right side of the chart and click the check box next to Data Labels. Result: …
Conclusion:
The DMAIC project should focus on studying the write-off process in planning, procurement, and packaging functions. This will help mitigate risks by a maximum of 85% of write off.
2. Pareto Within a Pareto
This case on Pareto talks about the sub-stratification of data and the reasons to create a “Pareto within Pareto.” The following Pareto uses stratification under planning and procurement:
Conclusion:
In the warehouse project, “Mitigate Write off”, the Pareto principle helped prioritize actions using the 80:20 principle. By administering Pareto analysis, we prioritized action on only 2 functions to bring in 85% of mitigation.
Pareto analysis can be used in any phase of the DMAIC cycle – wherever the need is to prioritize the vital few from the trivial many.
