Pareto Analysis – Supplier Business Reviews

Pareto analysis is a decision-making tool used to prioritize actions based on the principle that a small number of causes often lead to the majority of effects. This is commonly known as the 80/20 rule, which states that roughly 80% of outcomes come from 20% of the causes.

Here’s how Pareto analysis works:

1. Identify the problem or goal: Start by defining the area you want to analyze, such as customer complaints, defects, or expenses.

2. Collect and organize data: Gather data relevant to the issue. For example, in the case of defects, you might track the frequency and type of each defect.

3. Categorize causes or factors: Break down the data into categories. For defects, categories might include machine issues, human error, or material problems.

4. Rank causes by frequency or impact: Organize the categories or causes in descending order based on how often they occur or their impact on the problem.

5. Calculate cumulative percentages: Determine the cumulative impact of the causes as you move down the list. This will show you which causes are responsible for the majority of the problem.

6. Focus on the most impactful causes: Pareto analysis helps identify the “vital few” causes that have the greatest impact, enabling you to focus your efforts on solving them first.

By using Pareto analysis, you can focus on what matters most, make more efficient decisions, and solve problems more effectively. It’s widely used in areas like quality management, business strategy, and customer service.

Pareto chart

The Pareto chart helps focus on the most critical suppliers or issues, guiding strategic improvements and resource allocation in SBRs. A Pareto chart in Supplier Business Reviews (SBR) visually displays supplier performance data, highlighting key issues. It helps identify the most significant factors affecting business outcomes, based on the 80/20 rule.

Pareto Analysis in Supplier Business Reviews​

Lyons Quality Audit Tracking System Pareto analysis to focus on the 20% of suppliers that generate 80% of costs, quality issues, or delivery delays. This allows you to prioritize improvements and allocate resources effectively. Here’s how it works:

1. Collect Data:

   
   Gather data on supplier performance, such as cost, quality, delivery time, and service levels.

2. Identify the Key Metrics:

    

   Select the key performance indicators (KPIs) that matter most to your business.

3. Rank the Suppliers:

   
   Organize suppliers by performance, starting with the most critical ones based on the KPIs.

4. Analyze the Distribution:

   
   Identify which suppliers or issues account for the largest portion of your problems or costs.

5. Focus on Actionable Improvements:

   
   Target your efforts on the suppliers or issues that have the highest impact, rather than trying to address all suppliers at once.

Using Pareto analysis in supplier business reviews helps you make data-driven decisions, improve supplier relationships, and drive business success by focusing on the highest-impact areas.