Author: Carlos González González

Article: Taguchi Loss Function

Condition: Nominal is Better

Taguchi Loss Function detects the customer desire to produce products

that are more homogeneous, piece a piece and low-cost product. The loss to
society combines costs incurred, during production process, and costs found
during use by the customer.
Uniform products minimize the loss to society and reduce costs at the
points of production and consumption.
There is a comparison between the philosophy of goalpost syndrome
Figure 1 and the loss function generated by a normal distribution centered with
the target of specification see Figure 2.

good

bad
bad bad

Figure 1. Goalpost Philosophy inside it is good outside it is bad

Figure 2 shows that the quadratic loss function increase its value when the value
of the items depart from target, showing too that the minimum cost stays on the
target (Mean of Specification)
Figure 2. Quadratic Quality Loss Function and Probability Density Function
(Normal Curve – Bell Shape).

PhD. Genichi Taguchi uses the Mathematical equation (1-i):

L = k(y – m)^2 (1-i)

In this equation, L is the loss associated with a particular value y, m is the

nominal value of the specification, and the value of k is a constant depending on
the cost at the specification limits and width of the specification.

Applying this equation to the next problem we will have:

Problem 2.27, page 55 of “Statistics” book of Murray R. Spiegel of

McGraw-Hill Company Inc México, 2002.
“The following table shows the diameters in centimeters of a sample of
60 ball bearings manufactured by a company. Construct a frequency distribution
of the diameters, using appropriate class intervals.” Suppose that Limits of
Specification are: LSL = 1.720 and USL = 1.760, and the cost of a rejected part
at 1.720 and 1.760 is L = $1.00 Target or Mean of Specification = 1.740. What
is the individual Loss for a ball of a value of 1.730
Table 1-i
1.738 1.728 1.745 1.733 1.735 1.732
1.729 1.737 1.736 1.730 1.732 1.737
1.743 1.736 1.742 1.732 1.735 1.731
1.740 1.735 1.740 1.730 1.727 1.746
1.736 1.724 1.728 1.739 1.734 1.735
1.741 1.733 1.738 1.734 1.732 1.735
1.735 1.742 1.725 1.738 1.736 1.729
1.731 1.736 1.733 1.739 1.741 1.734
1.726 1.739 1.734 1.727 1.736 1.730
1.737 1.735 1.732 1.735 1.744 1.740

Substituting values on equation (1-i) we have:

$1.00 = k(LSL – m)^2

The lower specification limit (LSL) is substituted into the equation, which is
where the $1.00 loss is incurred. The upper specification limit also could be
used for this calculation. Solving for k,

k = $1.00 / [(LSL – m)^2]

Giving that m = 1.740 in (nominal value),

k = $1.00 / [(1.720 – 1.740)^2]

k = $1.00 / [(– 0.02 )^2]

k = $1.00 / (0.0004)

k = 2,500 per cm^2

Therefore for a part with value of 1.730:

L = 2,500(y – 1.740)^2 (1-ii)

L = 2,500(1.730 – 1.740)^2

L = 2,500(– 0.01)^2

L = 2,500(0.0001) = $0.25

A method of estimating average loss per part entails using the loss equation with
a different form. Mathematically, this calculation is equivalent to using the
average value of the (y – m)2 portion of the loss equation. Expanded, this is

L = k[(y1 – m)^2 + (y2 – m)^2 + … + (yN – m)^2 +] / N (1-iii)

Where N = number of parts sampled.

If all the (y – m) values are squared, added together, and divided by the number
of items, then the result is the desired value. For a large number of parts, the
average loss per part is equal to.

L = k[S^2+(ybar – m)^2] (1-iv)

S^2 = variance around the average, ybar

ybar = average value of y for the group.

(ybar –m) = offset of the group average from the nominal value m

Equations 1-iii and 1-iv are equivalent.

For the set of values presented in Table 1-i the values of S^2 and ybar can be
calculated by hand.
S^2 = (0.004951)^2 cm^2 = 0.000024512

ybar = 1.734867

Using Equation 1-iv we have:

L = k[S^2+(ybar – m)^2]

L = 2500[0.000024512 + (1.734867 – 1.740)^2]

L = 2500[0.000024512 + (– 0.005133)^2] = 2500[0.000024512 + 0.000026347]

L = 2500 x 0.000050859 = $ 0.1271475 per part

We were working for an objective named “nominal is best”.

Suppose that these 60 pieces were drawn from a lot of 5,000 parts the total loss
will be the multiplication of the average loss per part times the total number of
parts in the lot.

Total Loss = 5,000 x 0.1271475 = $ 635.73

Because they are not produced with a value of target = 1.740.

You can use the software in six different languages (Spanish, English, French,
Deutsch, Italian and Portuguese) LOSSFUNCTION_EN from site:

www.spc-inspector.com/cgg

When we run the program first we need to build the file of data (60
measurements) when you click on [BUILDING FILE], giving the name
including the termination .txt, then you need to open such file making click on
[LOSS FUNCTION DATA OF FILE] and [NOMINAL IS BETTER] then you
should provide the Limits of Specification and Loss in monetary units, then the
individual value of the measurement to calculate a particular loss function, you
will obtain on screen what it is shown in Figure 3.
Figure 3. Loss Function for limits and data provided from example 2.27 page 55
of book “Statistics”, Murray R. Spiegel, Mcgraw-Hill, 1961, 1988, 1997, 2002.
New York. Obtained from software LOSSFUNCTION_EN, <CGG-SOFT>

Note: The software uses n-1 into the formula to calculate the Standard
Deviation and Variance, by hand calculation was made using n inside the
formulas. That is why there is a little difference between calculates made by
hand and those made with the software.

Bibliography:
Spiegel Murray R. “Statistics”, McGraw-Hill Interamericana Editores S.A. de
C.V. México D.F. 2002.
Taguchi Genichi “Introduction to Quality Engineering”, “Designing Quality
into Products and Processes” Asian Productivity Organization, Tokyo 1986.
Ross J. Phillip “Taguchi Techniques for Quality Engineering”, “Loss Function,
Orthogonal Experiments, Parameter and Tolerance Design” Second Edition,
McGraw-Hill Inc. New York, NY, 1988, 1996.
“LOSSFUNCTION_EN” Software <CGG-SOFT> Carlos González González,
México, 2007.
Carlos González González
ASQ Fellow
Master Black Belt
ASQ Press Reviewer
MBA National University San Diego CA USA
e-mail: cgg111@gmail.com