Law of Pareto

The Law of Pareto , also called law of the 80/20 , is an empirical law inspired by the observations of Vilfredo Pareto, economist and Italian sociologist: 80% of the richnesses are held by 20% of the economic people. This " loi" , although empirical, was formalized in Mathématiques by the Distribution of Pareto.

Birth of the principle

It is in 1954, that the quality control engineer Joseph Juran diffuses this concept for the first time under the name of " Principle of Pareto".

Juran confesses in 1960 to have allotted this principle of distribution to the bad author, because in fact many are those which stated it front. However, the method appears useful to him: " the principle of Pareto is the general method making it possible to sort any aggregate in two parts: vital problems and problems more secondaires" - " in all the cases, the application of the principle of Pareto makes it possible to identify the properties of the strategic problems and to separate them from the autres" . For Juran, this principle has value " universelle" : " the fact that the managerial problems present in a general way the same properties, make me consider the principle of Pareto as a universal tool for analysis ". It exposes of them concrete examples concerning all the functions of the company: stock management, management of the sales, of the deliveries, dysfunctions of production,…, and even strategic management: " By preparing their ambitions, the experienced managers know that only some major elements are decisive. The remainder will consequently be treated occasion as parts of these elements " (Juran, 1964).

Juran was also at the origin of the method ABC (an alternative of the Pareto principle): " I exaggerated a little while advancing that the principle of Pareto only makes it possible to separate the things in two shares. Actually, there exist 3 parts. The third is a “residue” which takes seat between the priority components and the secondary components. This “residue” can be called “zone at the risks” (awkward-zone). Each element of this zone at the risks is not enough important to justify a heavy investment in the analysis, but their regrouping exceeds the capacities of analyze" (Juran, 1964).

In 1963, the American Department of the Trade, presented the principle of Pareto in a titrated article: “ Comment the manufacturing companies reduce do their costs of distribution ? ".

Stock management - this law is also called law ABC. The resources accounting for 70 to 80% of CA are gathered in the class has, the resources contributing between 10 to 15% to CA are in the class C and the class B gathers the intermediate resources;
management of the sales;
services: 80% of the complaints come from 20% of the customers;
Project management: 80% of achievement of a development require 20% of the effort;
Production control: 20% of the products account for 80% of the turnover. That makes it possible to choose on which Procédé S or process to make modifications in priority.

Use in management

The law of Pareto is not always dictated by the only research of the facility: the fact that 20% of the means make it possible to reach 80% of the objectives formalizes an act of management reasoned, registered in the duration.

The law of Pareto replaces primarily a “linear distribution”, when this one does not answer the observation, by another proposer a less uniform distribution. linear

management is not reduced to the Contrôle management, but basically consists to decode and accompany the facts, and it is with that assistance the law of Pareto, while suggesting concentrating at the beginning on the small number of facts which will explain the most things (Loi of the decreasing outputs).

Production control - When a linear distribution is obtained (production, surveys, phenomena physique, problems to be treated, etc), then, the costs of management are optimized.

Management of the risks - When 80% of the articles remaining are brought back to reasonable levels, then, the perenniality of the company is assured.

Use in the method six sigma

Diagram of Pareto - the diagram of Pareto is used in the approach Six Sigma to summarize and post graphically the relative importance of the differences between groups in data. This diagram is built by segmenting the data in groups (also called segments or categories), the left side of the vertical axis of the diagram of Pareto contains the number of authorities for each category, the right-sided is the cumulative percentage. The horizontal axis represents the names of the categories.

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