The Pareto principle, most commonly known as the 80-20 rule, is known by business owners as the simple fact that 80% of your problems are caused by 20% of the people. Really the theory was about wealth and power distribution, but the general premise applies. Most of your issues can be attributed to a fairly small distribution of root causes.
What does it look like?
What does it do?
A Pareto Charts work in levels to help you identify the root cause of the tallest bar (the biggest issue).
How do I use it?
The trick with Pareto is to start high and whittle away. What does that mean? It means that when you find out department A is supplying department b with all of the material that ends up in their rework, don’t go to department b and shut everything down. I know that it seems counterintuitive, but jumping the gun before you find out why that material ends up in the rework pile, leads to rework on department a’s part, causing more defects.
What doesn’t it do?
Pareto doesn’t provide an instant Ah-ha moment, it’s a method that requires patience and adherence to the process to be effective. If you need the answer now, it may not be the method for you. You may be better suited to process mapping or the 5 Why’s which will point you in a direction immediately. I have to say however, if you want the right answer validated by numbers then Pareto is right for you.
In 6Sigma the devil is in the details and a successful improvement initiative depends heavily on the selection of the right tool for the engagement. A successful selection depends heavily on the knowledge and skill of your belt, so use that library of knowledge and if that belt isn’t asking you a thousand questions about your end goal-move on!
Six Sigma is often thought of as a statistic heavy method and to some degree that is true. But the truth about statistics is if you don’t understand what they are trying to tell you, then they are just numbers on a page. The good news is that the purpose of Six Sigma metrics generally fall into 3 categories: can I make it better, can I make it faster or can I make it cheaper.
Basic Metrics Help Me Make It Better
These metrics are typically Defects per Unit (DPU), Defects per Million Opportunities (DPMO) and Rolled Throughput Yield (RTY). The purpose of these metrics is to decide whether you can eliminate waste and increase the quality of your end product. This is a metric that will not create an almost answer, you will identify and work from a root cause perspective.
Basic Metrics Help Me Make it Faster
This measurement deals almost exclusively with cycle time, this category is almost singularly concerned with reducing production and delivery time. Focus on the cycle time requires you to focus on the process from cradle to grave. You are looking very much to reduce variations and eliminate non value added activities.
Basic Metrics Help Me Lower Cost
This metric requires you to deal with the cost of poor quality (COPD). If this is a measurement that you are using, your purpose is to find out where the quality problem is, how much it is costing the organization and how to eliminate it.
This is a basic summation of how you will decide what type of metrics to use, next week we will go into detail about specific metrics. Knowing why you are measuring something and what you need those measurements to tell you is the most important part of your 6Sigma project. Your belt will be able to walk you through a specific measurement and offer advice as to whether or not it is the best metric to use.
One of the best things about Six Sigma is that it presents a concrete way to translate the value of improvements to your staff and leadership. A great tool to highlight the value of Six Sigma is Cost of Poor Quality (COPQ).
What is the Cost of Poor Quality?
COPD identifies the amount of lost profit an error in a process causes. This is the method that you can use to build a business case for 6Sigma and how much value your company will save by implementing it.
What does the Cost of Poor Quality Look Like?
ASQ COPQ Template
How does it work?
COPQ has four essential elements: internal costs, external costs, prevention costs and appraisal costs.
Internal costs-these are the costs that occur due to an error in your organization’s processes.
External costs- these are costs that are associated with internal and external customer dissatisfaction.
The other two elements are self-explanatory but one could argue that they are significantly more important. If you can’t appraise the process you can’t prevent waste.
What it doesn’t do
What is important to remember about COPQ is that it identifies the symptom of the defect, not the defect itself. With that in mind, COPQ will not provide a solution to your improvement challenge. The solution will come from your belt.
COPQ may seem like a no-brainer, but cost come in two forms: tangible and intangible. What your belt will do is illustrate what the intangible are and how they affect the business. The typical company spends at least 25% of their revenue on COPQ or waste, so what will you clean up today?
Six Sigma has gotten a sometimes well deserved rap for being overly-complicated, but this is a tool that is the antithesis of that reputation. It does involve metrics but the bulk of the focus is on strategic planning. Strategic planning means many things to organizations, but within the lens of a 6Sigma strategy it should mean a road map to the best version of your organization.
What is a Future State Vision?
A Future State Vision is basically what it says; it is a concrete plan for the most desired state of your business. Think of it as a more specific path to your company’s vision board. This is where you create the details that will get you to the goals on that vision board.
What does it look like?
How do you use it?
The tricky thing about a Future State strategy is that you have to come up with the end before you can address how you will get there. So to begin with you will actually start at the end and the how whole point of the strategy is to figure out the most practical (in terms of manpower, expense and resources) path to get there.
What does it do?
The Future Strategy does not provide you with a road map for your current problems. The metrics you use for this strategic should resemble your operational metrics, but they should not be exactly the same because your outcome for this strategy will be different. This is a big picture operational strategy so your metrics should be performing at a macro level when you turn your attention to this strategy. What it does do is help your staff to create meaningful big picture metrics, so low hanging fruit will not work here. This tool will be a great asset to upper level management responsible for creating organization wide strategy.
As with all my Six Sigma tools, this is just a template. Your specifics will lie in the knowledge your belt will bring in drafting this tool specifically for your organization at an executive level. So what are you waiting for? Start dreaming.
You hear about this rule all the time from management, human resources and just about any business guru you can think of, so what exactly is it and how do you use it? The Pareto Chart, based on the Pareto Rule (commonly called the 80/20 rule), is an economic distribution principle named after Italian engineer Vilfredo Pareto, which showed 80% of land wealth was held by 20. Business has adopted this principle to say that 80% of the problems are caused by 20% of the people.
What you need to know
The Pareto Chart measures specific data in broad concepts and puts the information into a summary you can interpret a little easier. If you want to measure how often a process stalls or how many times red comes up in a sea of blue, then this is the method for you. When you use this method, before you begin you should decide how you want to group the items you’re measuring and how that measurement will happen. Ask yourself, am I measuring by weeks, days or hours? This distinction will make a difference in your results so you will need to find the most appropriate one.
When you should use it?
You should use the Pareto Chart when you are trying to find the frequency of something, say how often customers return a specific product or the reasons why the product is delivered late.
What a Pareto Chart looks like:
When you’ve gathered your data, you will use that information to create a Pareto Chart. An example of what a Pareto Chart might look like is below.
There are more steps involved in creating a Pareto Chart, but this post should give you some insight into what it is used for and why it is used.