CASE 9-1 HOW CAN MARK MAKE USE OF AN OLD LAW? Mark Lozada is the production superintendent for Indotek Ltd. He is responsible for the manufacture of the company's entire out- put of small machine parts. Recently, Mr. Lozada became concerned with the alarming rise in his plant's scrap rate. The rate had been increasing steadily for several weeks and had reached the highest level in five years. He assigned one of his foremen the responsibility for determining the cause. The foreman quickly discovered the cause and made his report: "I made a thorough check of the output of all our machines and found that 20% of the machines are producing 80% of the scrap. If we get the repair crew on that 20 %, I think we'll lick the problem." The machines that were producing most of the scrap were re- paired and the scrap rate quickly returned to an acceptable level. "Interesting," Mr. Lozada thought, "that 1/5 of our machines wereproducing 4/5 of our scrap. Shortly after, he checked into another common plant problem - tardiness. Surprisingly, he found from the personnel records that 20% of his work force were responsible for son: of the mess. \"Hold on,\" he mused, \"there"s that 20/80 ratio again." ntrigued by the reappearance of the 20/80 ratio that he mentioned the coincidence to a mathematician friend. His friend laughed. \"That was no coincidence, Mark. You've stumbled Upon Pareto's Law, which is a natural law dealing with cause and effect. In other words. in any muse and effect relationship, 80% cf the effects will come from 20% of the possible cause." The mathematician went on to explain that the 20/80 relation- Ship is an average, not an exact numerical value and that the ratio might be sofas 15/15. 25/9\" etc- He added that sac/so ratio so constant in cause and effect. was formUI'thd by Vilfredo Paretoi the and Italian economist and sociologist who ldied Marchese di Parigis . ied it to show that the distribution of incomes in 1923. He first app] . . and m various ages tends to be similar despite in various countries _ differences in governmental policy, Mr. Lozada was so i Are there other areas of production where Mr. Lozada might apply Pareto's Law to improve his effectiveness? Should he bring up this law at the monthly staff meeting? Might it have application for other members of the management team