Supply Chain Concepts

Pareto Analysis

Major Topic Area: quality concepts

Pareto analysis is named after the Italian economist Vilfredo Pareto. Most readers will be familiar with Pareto's 80/20 rule. This rule is applied in industry and business in many ways. For example:

• 80% of our sales are generated by 20% of our customers
• 80% of our sales are generated by 20% of our products

Pareto analysis is a graphical extension of this concept.

The example shown below is data summarized from warranty repair records for an automobile dealership. The dealership wishes to analyze the data to better understand the leading sources of warranty repairs.

Number of occurrences	Type of Repair
7	paint issues (i.e. scratches)
12	engine coolant
22	electrical problems
55	tires
3	wiper blades malfunction
1	locks malfunction
1	windshield cracks

The corresponding Pareto chart would have the following appearance:

 

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