UNIT-4

Pareto Chart
A Pareto chart is a bar graph or the combination of bar and line graphs. The purpose of using this
chart is to represent a set of data in a bar graph chart. The individual values are represented by
the length of the bars and the line shows the combined total. The values are expressed from the
longest bar to the shortest bar in the graph. These charts are also created using
the excel sheets. Basically these graphs give statistical information on a bulk of information for
each category. Hence, it is a part of Mathematical statistics.

Pareto Chart Analysis and Interpretation

Let us learn how to make use of the Pareto chart for various applications.

 Firstly, determine the classifications you will use to arrange the items in the bar graph.
 Choose an appropriate measurement such as frequency, quantity, cost and time.
 Decide the time period for the Pareto chart for which the bar graph will be drawn, For
example, for a week, a month or a year.
 Assemble the new data and already existing data as per the category and period of time.
 Do the total of the measurements for all the categories.
 Choose the proper scale for the measurements you have assembled. The total you made
in the above step will be the maximum value.
 Now for each category construct the bars along with labeling it. The longest bar should
be placed at the leftmost place and shortest at the rightmost.

Applications of Pareto Chart

Pareto charts are the best chart to do the analysis of the bulk of data. In business industries, these
charts are used very often. Let us see some of its more applications.

 For the analysis of the revenue growth of the organization with respect to the time period.
 To choose for any specific data and work on it, in a broad set of data available.
 To explain to other people the set of data you have.
 For the analysation of population growth in a city or country or all over the world every
year.
 To check the global problems and focus on resolving the major one.
 To check the major complaints coming from the public and resolve them on priority.

Pareto Chart Example: Let us take an example, where we need to prepare a chart of feedback
analysis for XYZ restaurant, as per the reviews and ratings received from the customers. Here
the customers are given a checklist of four points based on which they have to rate the restaurant
out of 10. The four points are:

1. Taste of the Food

2. Quality of the food
3. Price
4. Presentation
 Vendor rating
Vendor rating is a process where the suppliers are provided with a status or a title based on
several factors.
Factors could be credibility, delivery time, price, quality of the goods supplied, and a set of such
mixed variables.
The vendor ratings are based on the vendor’s performance. They can have several levels: good,
average to best, or anything that the firm decides.

We know that some factors or parameters affect the vendor rating. For
example, while evaluating suppliers, buyers usually consider the following things.

Quality: The quality of the products or goods vendor supplies is the main factor. The vendor can
maintain good quality by improving production, having quality planning in the supply chain.
Quality factor consists following things.
 The supplier should obey and follow the terms and conditions mentioned in the purchase
order.
 The vendor’s products or services must meet the specifications mentioned in the request
for proposal and purchase order.
 The product failure rate should be within the appropriate limit.
 The vendor should do proper repair or rework.
 He should provide adequate time duration for replacement.
Price: A company always wants to get the materials at less expense to reduce its manufacturing
cost to increase its profit. Hence the vendor needs to set a competitive price for his products. It
includes the following things.
 Stable price: The price of the product or service must be stable over some time.
 Accurate price: There should not be much difference between the purchase order price
and invoice price.
 Prior notice about price changes: He should inform about price changes in advance.
 Billing: He must provide easily readable and understandable bills.

Delivery: Supplier has to develop the ability to deliver the goods on a scheduled date. This factor
consists following things.
 Lead time: Lead time is the time between the actual delivery day and order placement
day. The shortest lead time helps to get a good impression on the supplier. The vendor
should deliver products on or before the promised date.
  Quantity: He must deliver the correct amount of products as mentioned in the contract.
 Packing and documentation: Packing of the products must be suitable, study, and
undamaged. The vendor should provide proper documents along with the delivered
products.
 Emergency delivery: The vendor must have the ability to deliver products in case of some
emergency requirements.
Service: It is one of the crucial criteria for the supplier. He has to provide good service by
providing an updated catalogue, pricing information, technical information along with the
following things
 He must have the ability to handle complaints effectively.
 The vendor should provide technical support for installation, maintenance, and repair.
 Emergency support: He should support in the emergency condition of product failure or
repair.
 Resolve the problems: Supplier should find the solution for the problem on time.

Benefits of vendor assessment

 Vendor rating helps the buyer understand the vendor in every critical aspect, and it helps to
know if the vendor is suitable to deal with or not. It does not deal with prejudices and word-
of-mouth. It is more dependent on data.
 It helps the buyers to strike the right kind of communication required.
 It ensures a consistent standard of vendor performance with updated reviews of their
performance.
 It helps the buyer identify areas of weakness in the performance of the vendor and allows the
buyer to take corrective actions.

Disadvantages of Vendor Rating

 Rating your vendor helps you to enhance your supply chain. But its significant
disadvantage is losing trust.
 Yes, when you evaluate and rate your vendor, he might feel that you do not trust him. It
may impact your relationship with your vendor/supplier. But effective supplier evaluation
helps the supplier to perform well.

Quality Audit

Quality audit is described as a documented examination that is independently conducted at

periodic intervals. Any failure in proper implementation can be published publicly and result in
the dismissal of quality certification.
Quality audit is a standard monitoring process that ensures proper assessment of a system,
adequate implementation of processes, elimination of problem areas, and boosting
the efficiency of the methods.
 Advantages

The advantages of quality audits are as follows-

 The quality audit evaluates the effectiveness of a system and identifies the key areas that
need improvements. It serves as an essential tool to increase organizational functionality
 Sharing feedback of the quality audit with other departments improves the overall
processes of the whole organization.
 The quality audit measures the different aspects of the quality management system, track
those said measurements, convert analysis to opportunities and add viable value to the
core business.
 Increases the safety of workers by keeping an eye on the working conditions. It reports
any deterioration in the current conditions and monitors risks involved in working in
those conditions.
 Serves as a learning tool that learns about the various aspect s of the company so that it
can lead to future growth.
 Gathers input from the employees and uses these observations to gain valuable insight
into the company.
 Provides the summary of the investigation and evaluation the auditor has conducted so
that the key considerations can improve the overall performance of the company.
 Helps the organisation to align policies and real-world procedures. It nudges the company
to follow all the rules diligently the right way so that it can maintain all the expected
standards.
 Quality audit is considered an important activity that can measure gaps in the
organizational standards and processes.
 Quality audit is an effective technique to identify the various opportunities that can
eliminate waste and help optimization in an organisation.
 The quality audit has set parameters that include several checkpoints. It can easily track
issues before they occur.
 Periodic quality audits keep a check to know whether the preventive actions have been
practical or not.

Types of quality audit

 Internal quality system audit – As the name suggests, an internal quality system audit is
a tool to measure quality. It evaluates EQMS or Electronic Quality Management System
in an organization to ensure maximum outcomes and highest efficiency levels. The
software manual in this quality audit type is audited so that all the key employees can
access the document and the work instructions are audited so that quality processes can
meet set targets
 Production Team Audit – In a production team audit, the quality auditors have to
evaluate past activity for escapes, evidence of training and changes to processes. An
organization carries out a production team audit when it needs re-qualifications related to
skill management. It is also conducted when a Certified Operator program or Operator
Acceptance programs are in place.
 Supplier Audit – This type of quality audit helps an organisation to join forces with its
suppliers directly in real-time. When you conduct a quality audit in the supply chain, it
becomes easier to establish accountability if there is a chance of poor performance. The
company can control the quality of the suppliers and even the sub-tier suppliers by
implementing supplier audits in its system. There is a higher level of transparency
because of quality audit, and this encourages the identification of the areas that needs
improvement via KPIs or Key Performance Indicators.
 The supplier audit can easily view purchase order activities like receipts to take the
necessary corrective actions.

 Safety Audits- Safety policies in an organization are a necessity because it can prevent
accidents from happening. If someone is injured, it can mean loss of life or any other
serious issue that can be damaging to the company. A successful safety policy improves
the overall well-being of an employee. Safety audits are aimed at protecting the safety of
the employees in an organization by viewing the plans and designs. It also examines
organizational procedures and reviews equipment operation to ensure routine safety in
the company.

 Environmental Audit – The environmental audit helps to create a safe environment by
identifying workplace risks. It also ensures that all the employees are using personal
protective equipment and taking the necessary measures in the workplace.

 Facilities Audit – A facilities audit reviews building systems, technology, and

manufacturing equipment to ensure safety. It also helps to identify the improvements that
can encourage quality outcomes.

 Risk Assessment Audit – As the name suggests risk assessment audit helps to create and
implement an effective strategy for risk mitigation. It prioritizes preventive measures and
makes sure that they are implemented as per the need of the hour.

 Regulatory Audit – This type of audits helps to verify compliance with set standards and
regulations. It reviews the data collection method and quality practices to identify the
areas of non-conformance.

 Design Control Audit – The design control audit helps to review the design plan, output,
and input for proper acceptance. It ensures the recognition of formalized processes in the
workplace so that it can meet acceptable safety and quality standards and perform risk
analysis.

 Method Validation Audit – The method validation audit ensures standardization of

analytical test methods that are used during the manufacturing process for accuracy and
consistency in case of products
Importance of Sampling

A sample is taken almost always to provide statistical data on an extensive range of subjects for
both research and administrative purposes.

The following examples are designed to illustrate the importance of sampling in real life:

1. In an opinion poll, a relatively small number of persons are interviewed, and their opinions on
current issues are solicited in order to discover the attitude of the community as a whole.
2. Marketing and advertising agencies conduct countless inquiries to determine customers’
expectations, attitudes, buying habits, or shopping patterns. This information is useful to the
manufacturers of goods for sales promotion. Since it is impossible to procure this information
from countless customers, it is achieved through interviewing a part of the customers.
3. Large lots of manufactured products are accepted or rejected by purchasing departments in
business or government following inspection of a relatively small number of items drawn from
these lots.
4. At border stations, customs officers enforce the laws by checking the effects of only a small
number of travelers crossing the border.
5. A department store wishes to examine whether it is losing or gaining customers by drawing a
sample from its list of credit card holders by selecting every tenth name.
6. Auditors often judge the extent to which the proper accounting procedures have been followed
by examining a small number of transactions, selected from a large number of such transactions
taking place within a specified period of time.
7. Ministry of Health and Family Welfare might be interested to know the status of knowledge
among the adult population in Dhaka city on the danger of environmental pollution by
interviewing a few selected adults of the city.

Benefits/Advantages of sampling

Sampling ensures convenience, collection of intensive and exhaustive data, suitability in limited
resources and better rapport. In addition to this, sampling has the following advantages also.

1. Low cost of sampling:

If data were to be collected for the entire population, the cost will be quite high. A sample is a
small proportion of a population. So, the cost will be lower if data is collected for a sample of
population which is a big advantage.

2. Less time consuming in sampling:

Use of sampling takes less time also. It consumes less time than census technique. Tabulation,
analysis etc., take much less time in the case of a sample than in the case of a population.

3. Scope of sampling is high:

The investigator is concerned with the generalization of data. To study a whole population in
order to arrive at generalizations would be impractical.

4. Accuracy of data is high:

Having drawn a sample and computed the desired descriptive statistics, it is possible to
determine the stability of the obtained sample value. A sample represents the population from

Which it is drawn. It permits a high degree of accuracy due to a limited area of operations.
Moreover, careful execution of field work is possible. Ultimately, the results of sampling studies
turn out to be sufficiently accurate.

5. Organization of convenience:

Organizational problems involved in sampling are very few. Since sample is of a small size, vast
facilities are not required. Sampling is therefore economical in respect of resources. Study of
samples involves less space and equipment.

6. Intensive and exhaustive data:

In sample studies, measurements or observations are made of a limited number. So, intensive and
exhaustive data are collected.
7. Suitable in limited resources:

The resources available within an organization may be limited. Studying the entire universe is
not viable. The population can be satisfactorily covered through sampling. Where limited
resources exist, use of sampling is an appropriate strategy while conducting marketing research.

8. Better rapport:

An effective research study requires a good rapport between the researcher and the respondents.
When the population of the study is large, the problem of rapport arises. But manageable
samples permit the researcher to establish adequate rapport with the respondents.

Limitation/Disadvantages of sampling

The reliability of the sample depends upon the appropriateness of the sampling method used. The
purpose of sampling theory is to make sampling more efficient. But the real difficulties lie in
selection, estimation and administration of samples.

1. Chances of bias:

The serious limitation of the sampling method is that it involves biased selection and thereby
leads us to draw erroneous conclusions. Bias arises when the method of selection of sample
employed is faulty. Relative small samples properly selected may be much more reliable than
large samples poorly selected.

2. Difficulties in selecting a truly representative sample:

Difficulties in selecting a truly representative sample produce reliable and accurate results only
when they are representative of the whole group. Selection of a truly representative sample is
difficult when the phenomena under study are of a complex nature. Selecting good samples is
difficult.

3. In adequate knowledge in the subject :

Use of sampling method requires adequate subject specific knowledge in sampling technique.
Sampling involves statistical analysis and calculation of probable error. When the researcher
lacks specialized knowledge in sampling, he may commit serious mistakes. Consequently, the
results of the study will be misleading.

4. Changeability of units:

When the units of the population are not in homogeneous, the sampling technique will be
unscientific. In sampling, though the number of cases is small, it is not always easy to stick to
the, selected cases. The units of sample may be widely dispersed.

5. Impossibility of sampling:

Deriving a representative sample is difficult, when the universe is too small or too
heterogeneous. In this case, census study is the only alternative. Moreover, in studies requiring a
very high standard of accuracy, the sampling method may be unsuitable. There will be chances
of errors even if samples are drawn most carefully.