TAGUCHI LOSS FUNCTION AND QUALITY MANAGEMENT

Total Quality Paradigms

Adopting a TQ philosophy requires significant changes in organization design, work processes, and
culture. Organizations use a variety of approaches. Some emphasize the use of quality tools, such as
statistical process control of Six Sigma (which we discuss in the next chapter), but have not made the
necessary fundamental changes in their processes and culture. It is easy to focus on tools and techniques
but very hard to understand and achieve the necessary changes in human attitudes and behavior. Others
have adopted a behavioral focus in which the organizations people are indoctrinated in a customerfocused culture, or emphasize error prevention and design quality, but fail to incorporate continuous
improvement efforts. Still other companies focus on problem-solving and continuous improvements, but
fail to focus on what is truly important to the customer. Although these firms will realize limited
improvements, the full potential of total quality is lost due to a lack of complete understanding by the
entire organization.
Single approaches, such as statistical tools, behavioral change, or problem solving can have some shortterm success, but do not seem to work well over time. Total quality requires a comprehensive effort that
encompasses all of these approaches. A total change in thinking, not a new collection of tools, is needed.
Total quality requires a set of guiding principles. Such principles have been promoted by the many
quality gurus Deming, Juran, and Crosby, Ishikawa and Taguchi. Their insights on measuring,
managing, and improving quality have had profound impacts on countless managers and entire
corporations around the world.
Defining Quality as Loss Function
Taguchi (1986) suggests that there is increasing loss, for the producer, the customer, and society,
associated with increasing variability, or deviation from a target value that reflects the ideal state. This
relationship to variability can be expressed as a loss function, as shown for the distribution of rods from
grinding operation C. The greater the variability, deviation from target, the greater the loss will be.
Traditional specifications, used in the manufacturing-based approach to quality, define conformity n terms
of upper and lower specification limits. For example steel rods should meet the engineering specification
for length of six inches, plus or minus 10 one-hundredths o an inch (6 + or 0.10). This approach tends to
allow complacency concerning variation within that range. It assumes that a product just barely meeting
specifications, just within the limit, is just as good as on right in the middle, but one just outside the
limit is bad. Taguchi questions these assumptions, and suggests the degree of badness or loss
increases gradually as the deviation from the target value increases. Although managers may choose to do
the right thing (the target), in order to provide superior value to customers through superior quality, they
must also continuously improve their systems and reduce variation to meet the target. In the 1980s,
Motorola committed to a campaign called Six Sigma, which is one way of saying reduce variation so
much that the chance of producing defects is down to about 3.4 defects per million, or 99.99966 percent
perfect.

Taguchis loss function: loss increases as a function of variation

Loss ($)
due to variation

Loss ($)
due to variation
Distribution of output

Length of rod in
5.9
LSL

6.0
Target

6.1
USL

inches

The Deming Management Philosophy

Deming was trained as statistician and worked for Western Electric during its pioneering era of statistical
quality control development in the 1920s and 1930s. During World War II he taught quality control
courses as part of the national defense effort. Although Deming taught many engineers in the United
States, he was not able to reach upper management. After the war, Deming was invited to Japan to teach
statistical quality control concepts. Top managers there were eager to learn, and he addressed 21 to
executives who collectively resented 80 percent of the countys capital. They embraced Demings
message and transformed their industries. By the mid-1970s, the quality of Japanese products exceeded
that of Western manufacturers, and Japanese companies had made significant penetration into Western
markets.
Deming taught quality to Japanese and Ishikawa was Demings student. Americans did not listen to
Deming as attentively as Japanese did and took his a prophet of quality.
Genichi Taguchi's Quality Loss Function
The Quality Loss Function gives a financial value for customers' increasing dissatisfaction as the product
performance goes below the desired target performance.
Equally, it gives a financial value for increasing costs as product performance goes above the desired
target performance. Determining the target performance is an educated guess, often based on customer
surveys and feedback.
The quality loss function allows financial decisions to be made at the design stage regarding the cost of
achieving the target performance.
Quality through Robust Design Methodology
Taguchi methods emphasized quality through robust design, not quality through inspection. Taguchi
breaks the design process into three stages:

System design - involves creating a working prototype

Parameter design - involves experimenting to find which factors influence product performance
most
Tolerance design - involves setting tight tolerance limits for the critical factors and looser
tolerance limits for less important factors.

Taguchis Robust Design methodologies allow the designer through experiments to determine which
factors most affect product performance and which factors are unimportant.
The designer can focus on reducing variation on the important or critical factors. Unimportant or
uncontrollable noise factors have negligible impact on the product performance and can be ignored.
Robust Design of Cookies
This is easier explained by example. If your business makes cookies from raw ingredients, there are many
possible factors that could influence the quality of the cookie - amount of flour, number of eggs,
temperature of butter, heat of oven, cooking time, baking tray material etc.
With Genichi Taguchis Robust Design methodologies, you would set up experiments that would test a
range of combinations of factors - for example, high and low oven temperature, with long and short
cooking time, 1 or 2 eggs, etc. The cookies resulting from each of these trials would be assessed for
quality.
A statistical analysis of results would tell you what the most important factors are, for example oven
temperature affects cookie quality more than the number of eggs.
With this knowledge, you would design a process that ensures the oven maintains the optimal
temperature and you would be able to consistently produce good cookies.