In a previous post we talked about the “Hidden Factory” as a cost generator and how to find out how big that hidden factory is. Now that you know about this factory, the question is “Where do you start eliminating it?” The answer lies in the 80-20 Rule which with most all of us are familiar. That is 80% of your hidden factory comes from only 20 percent of the defects that cause rework or scrap. A Pareto analysis is an easy way to see how this happens.

Last month we suggested that you gather data about the First Pass Yield and Scrap Rates at key points in the production process using a tick sheet. The tick sheet had in one column a list of the defects that cause parts to be sent either for rework or to the scrap bin. If a piece is defective as it exits the operation, a tick mark is put on the line next to the appropriate defect reason. A week of this data can be used to create the Pareto analysis.

At the end of the week, gather these tick sheets. Either in a computer spreadsheet or on a piece of paper list all the defect types each on a separate line in a column. Next to each defect type put the total number of pieces sent to rework or scrap for that defect during the week. Now organize these lines so that the defect causing the highest number of defective pieces is at the top of the sheet and all the rest are below that in descending order by the number of defective pieces. This is a Pareto analysis. You’ll quickly see that typically there are only a few defects at the top of the column that account for most of the rework and scrap.

At this point, you could start by working to eliminate the causes for the defects causing the highest number of defective pieces, but what if the cost of the rework or the scrap is different for different defects. Maybe you’d want to work on the defects that are costing you the most money! If that is the case, for each defect multiply the number of defective pieces by the cost to rework or to scrap each piece and put that number in a third column. Now organize the lines so that the defect with the highest cost is at the top of the sheet and successively lower costs as you go down the sheet. Again you’ll see that typically there are only a few defects that are costing you significantly.

So now you have an idea about where to start towards eliminating that “Hidden Factory.” You first attack the most costly defects based upon your Pareto Analysis.

One final thought, if one of the costly defects is going to be particularly hard to eliminate. Go on to the next. This is called picking the “low hanging fruit.” In other words, get started with changes that will give you the greatest immediate benefit in reducing the cost of your “Hidden Factory.”