UNIT III PROBLEM IDENTIFICATION The argument is often made that a

good manager knows where the problemareas can be found. This is not always the
case. All too often we try to workon the symptom rather than the real cause.
Without hard data on which to basedecisions we are left to follow our hunches. We
find ourselves trying toeradicate a problem which may result in very little savings
of time or dollars.In general we will find that only a few problems are really
important inimproving productivity and quality. THE PARETO PRINCIPLE Dr.J.
M. Juran is credited with the concept in quality control known asthe PARETO
PRINCIPLE. The argument has been made that this concept should betermed the "JURAN
PRINCIPLE" because the concept was originally associated withan economist named
Vilfredo Pareto and charts used by M. O. Lorenz to depictthe maldistribution of
wealth. Pareto observed that a large proportion of thewealth is in the hands of a
small proportion of the population. Dr. Juranobserved the principle as it applies
to the maldistribution of quality losses. The following is a copy of an article
by Hy Pitt titled "Pareto Revisited-- An old friend, the Pareto principle, gets a
new and novel treatment". It isreprinted here with permission of Quality Progress
and Hy Pitt of PittAssociates. Copyright 1974, A.S.Q.C. It is time to take
another look at the so called Pareto principle. The introduction of this popular
concept, as applied to industrial problems, are generally credited to Dr. J. M.
Juran through his lectures and writings. The idea is ancient. There is an
example of its use in the Old testament, although it was not given a name at that
time. And all of us, when introduced to the Pareto principle, may have recognized
it as a way of human thinking in which we have indulged at one time or another.
Still it is treated as a revelation, and we are apt to respond excitedly, "Why
didn't think of that?" The idea is simple. The universal property the principle
describes is that all events or causes are not uniformly distributed as far as
their effects are concerned. Relatively few of the causes are responsible for most
of the effects. here is, an short, a maldistribution of these events and their
effects. Life and literature are replete with examples: *Only a few of the
employees in a department are responsible for most of the absenteeism.
*Perhaps ten percent of our customers (known as our key accounts) provide us
with 75 percent of the total sales dollars. *A large percentage of the wealth
lies in the coffers of relative few families. *Only six of the 40 possible
quality defects account for 80 percent of all quality dollar losses. *Only
three of the 15 machines on the floor are responsible for 65 percent of the
downtime. The concept is paramount in the value engineering discipline; many
other examples of its application can be found. There are important
implications of a management nature in this property. Given any industrial problem
that we wish to attack, we will find there are many causes that can contribute to
that problem. It is usually impossible and wasteful to try to remove all of the
causes. We simply recognize that all causes are not equally important. VITAL
FEW AND TRIVIAL MANY It is considered better to sort the causes into two piles:
the "vital few" and the "trivial many". The result of such Pareto type analysis is
that our resources can then be directed toward the vital few, or "most juicy," in
order to get the most return for our efforts. For example, suppose that the
incidence of defects on a particular unit of product has the distribution shown in
Table 1. The defects have been listed in the order of frequency of occurrence and
identified by letters. TABLE 1 Defect
Percent of All Defects Found A 32
B 2 9 C
14 D 7 E
6 F 6 G
2 H 2 I
1 J 1 The picture is clear in
this Pareto distribution. Only three defects (A,B,C) are responsible for 75 percent
of all the defects that occurred. These appear to be the vital few. Should we
attack defects A, B and C? The answer is yes, but only if our objective is to
reduce the total number of defects (or the average number of defects per unit) .
Attacking defects A, B and C may not really help us if they have a minor impact on
the quality dollar losses. It makes sense to management to assign a monetary value
to each of these defects so that, as Juran nicely puts it, we can retrieve some of
the "gold in the mine." From a stratigic point of view it would be less expensive
to recover some of these losses than it would be to increase sales sufficiently to
earn equivalent profits. Our simple Pareto distribution of one dimension
(defect frequency) takes on another dimension (annual dollar losses) . The new
distribution may look like Table 2 . Defects E and G have now moved into the
limelight, while A and B have lost their luster. Defects C, E and G account for
almost 80 percent of all quality defect dollar losses. It would seem that these are
the defects against which we should unleash our energies.
TABLE 2 Defect Annual Loss Percent of Total Loss
C $300,000 34.7 E
2 40,000 2 8.9 G 130,000
15.0 B 45,000 5.2 D
45,000 5.2 A 35,000
4.0 H 2 0,000 2 .3 F
2 0,000 2 .3 J 10,000
1.2 I 10,000 1.2 Totals
$865,000 100.0 It can be a difficult task determining the dollar
values for each of the defects; most accounting systems have not been adapted to
quality cost reporting. This situation can be described as hopeless but not
serious. Whatever effort is made to get these figures, even if the accounting
department provides rough estimates, can be astonishingly fruitful. For what is at
stake here is the optimum utilization of a company's limited problem-solving
resources. At this point in our gold digging adventure we may encoounter some
serious logistics obstacles which are not usually considered in the customary
Pareto approach. The nature of defect C, the most enticing carrot, is such that it
would take at least five years to remove the defect. We may have to redesign a
critical machining operation at a cost of $150,000, to say nothing of assigning
three full-time engineers to the project. The commitment to eliminate defect begins
to lose its glamour. It becomes increasingly difficult to explain why the project
is faltering, and the sweet taste of $300,000 turns sour. We have inadvertently
added two new dimensions to the Pareto approach: time, and problem solving money.
It appears that our original strategy has been altered. It is not difficult to
measure the expenditures needed to cure the disease, but the dimension of time may
be Pareto's Pandora's box. Tell management that it would take five years to
accomplish our objective and there may be some raised eyebrows. Tell the team,
committee or steering arm that it will not see the fruits of its labor for five
years and entusiasm may quickly dwindle. The personal qualities of perserverance
and patience, essential to the success of our project, may be sorely taxed.
Which of the defects, then, should get our attention? Should we tackle a problem
whose solution will yeild $45,000 in one year of effort, or should we attack one
that will yeild $300,000 in five years of effort? Our impatience to get visible
returns for our investment in a reasonable period of time may not be selfish or
impractical at all. The cultural and political environment in industry being what
it is, long-term projects may simply not get the continuing direction andsustained
enthusiasm that are needed for successful completion. There is yet another
dimension or parameter that can be added to this intriguing approach to decision
making. Our guesses as to how long it will take to eliminate the defect or how much
real gold awaits us at the end of the rainbow are just that: guesses. We should be
able to assign some probability of success to our venture, knowing what we do about
the nature of the loss estimate, and the expertise of our human resources. In
short, we can impose an element of risk on our project.