4-50 RULE

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    Mohammed Rafi

    You all the there, can any body better explain me about the 4-50 RULE and also the differance between the “Pareto Principle” i.e 80/20 RULE?
    Thanks in Advance



    It´s a sort of second application of Pareto´s Principle on the 80% which is left on the results of the first instance.
    That is, we´d expect that with a 20% of the 20% of the individuales (a 4% of the X´s) we could get an 80% of the 80% of the first results (Y expected = 64%), but since Pareto is not exactly the same in this new level, it amounted to just 50% in the results.
    Some of this stuff has been experimented and explained by Jay Arthur, whom perhaps you could somehow get in touch with in the web.
    I wonder if someone could give is better information about it.
    Regards                      Ludwig



    Dear Mohammed ,  I´ve made some research on your theme.  Go over the following in page 32 of   “Arthur,  Jay, The Small Business Guerrilla Guide to Six Sigma”  (Statements within  are interpretations regarding the original version)  :
    “USE THE 4-50 RULE.-  Even though every manager has heard the 80-20 rule, they still try to use Six Sigma everywhere.  But Six Sigma is like peanut butter – the wider you spread it, the thinner it gets.  Remember that if you try to use Six Sigma everywhere,  .”
    “What if you could get over half of the “benefit” from Six Sigma by investing in just 4% of the business?     You can !   Pareto´s 80/20 rule is a power law.  Power laws aren´t linear, they grow by an order of magnitude.  So, if you believe in Pareto´s Rule, you have to believe that it applies within the 20% :  4% of    the business will cause 64% of the .  Wherever I go, I find that four percent of the transactions cause over 50% of the .  Four percent of Americans have over half the wealth. And so on.”
    “The research into the diffusion of innovation shows that transformational change begins with less than five percent of the work force (4%). It also suggests that to accelerate the implementation of  Six Sigma you will want to reduce the involved.”
    “Rather than waste…your… on a widespread implementation, focus and achieve results in just a few key areas.  Then like seeds in the wind, word of mouth will spread the change to a few neighbors, and before long, the entire company will have converted with minimal resistance and expense”.
    Sincerely, I think the above lines carry lots of truth.
    Regards.     Ludwig.


    Mohammed Rafi

    Thanks Ludwig
    I think the info. U provided is enough to get the concept if you can help me out of the Delima regarding the application of 4-50 Rule in our analysis.
    1) Is it very much like 80/20 ?
    2) Method of Analysis for the 4-50?
    3) If Possible one example with the application of 4-50 Rule?
    So kind if you can help me out, 



    I really appreciate your comprehensive explanation.I wish all others would  do the same.Some of you experts (like you,Stan,Mickel,Ron,Anna and others) are trying their best to give an honest ,comprehensive answers.I hope We all will use your excellent answers as a “benchmarking model”,regards.   MN



    Dear Mohammed:
    (1) This Jay Arthur version has the same mechanism as the traditional Pareto Rule and
    (2) Its method of analysis and interpretation is likewise similar.
    (3) Let me send you a numerical table that you may convert into a Pareto Chart to better visualize it.  It´s related with the cost of items handled in a refaction storehouse inventory in a company.  Herein cost importance of the parts involved is considered as is the frequency Pareto fashion.
    Ref          ID           Unit     Consumption   Tot.Cost          %             Acc. %
                                   Cost      (yearly)             (yearly)
    1               A           500            10                   5000            27.04               27.04         
    2               B           290             10                   2900            15.68               42.73
    3               C            218            10                   2180            11.79               54.52
    4               D             90            20                   1800               9.73               64.25
    5               E            125            10                   1250              6.76                71.01
    6               F             90             10                     900              4.87                75.88
    7               G         22.5              40                     900              4.87               80.75
    8               H           54               10                    540               2.92               83.67
    9                I             36             10                     360               1.95               85.61
    10              J             18             20                     360               1.95              87.56  
    11              K            14             2 0                    280              1.51               89.08
    12              L            20              10                    200               1.08              90.16
    13 – 40    M – AN                   510                  1,820              9.84             100.00
                                                    690                18,490           100.00
    For simplicity, the detail is shown up to the 12th most costly part, leaving parts 13th to 40th summarized in the last line of the table.  I´ll try to carry out a two-step analysis to see how well the 20/80 and 4/50 ratios are fulfilled.
    (A)     For the “traditional” Pareto Analysis (20 / 80 ), it´s seen that the 80%  Y  ordinate belongs to an X abscissa value between parts 6 and 7. By linear interpolation the found value was 6.85, which corresponds to a ratio of 6.85 / 40  =  17 % approximately.  So traditional Pareto “rule” for this case is ( 17 / 80 ) against the expected ( 20 / 80).
    (B)     For the “new” Pareto Analysis (Jay Arthur´s) (4 / 50), it´s seen that the 50% Y ordinate belongs to a  2 < X < 3 abscissa value, which by interpolation happened to be 2.61, which corresponds to a ratio of  2.61 / 40 = 6.5% approximately.  So, the Pareto ratio happens to be (6.5 / 50), instead of the expected (4/50).
    PLUS :  A little more sophisticated approach to this stuff, oriented to determination of the most significant items to pay attention to, would be the case of a frequency Pareto display in which its items A, B, C, etc., were themselves composed of sub-items A1, A2,…Ana, B1, B2,……Bnb,  C1, C2,….Cnc, etc.
    Then we´d first identify in the general Pareto approach the items A, B, C…etc., corresponding to the 20 / 80 rule and then “decompose” these critical elements into their sub-elements by means of the secondary Pareto treatment so as to define the really, really, really important items to which close attention ought to be paid.
    Hope the above might be helpful to you.
    Regards                  Ludwig.


    Mannu Thareja

    Hi Ludwig,
    Thanks for the excellent example.
    I appreciate ur effort.



       …   :-)       ….Ludwig

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