Taguchi loss function
Encyclopedia
The Taguchi Loss Function is a graphical depiction of loss
Loss function
In statistics and decision theory a loss function is a function that maps an event onto a real number intuitively representing some "cost" associated with the event. Typically it is used for parameter estimation, and the event in question is some function of the difference between estimated and...

 developed by the Japanese business statistician Genichi Taguchi
Genichi Taguchi
is an engineer and statistician. From the 1950s onwards, Taguchi developed a methodology for applying statistics to improve the quality of manufactured goods...

 to describe a phenomenon affecting the value of products produced by a company. Praised by Dr. W. Edwards Deming
W. Edwards Deming
William Edwards Deming was an American statistician, professor, author, lecturer and consultant. He is perhaps best known for his work in Japan...

 (the business guru of the 1980s American quality movement), it made clear the concept that quality does not suddenly plummet when, for instance, a machinist exceeds a rigid blueprint tolerance. Instead "loss" in value progressively increases as variation increases from the intended condition. This was considered a breakthrough in describing quality, and helped fuel the continuous improvement movement that since has become known as lean manufacturing
Lean manufacturing
Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination...

.

Overview

The Taguchi Loss Function is important for a number of reasons. Primarily, to help engineers better understand the importance of designing for variation
Variation
- Physics :* Magnetic variation, difference between magnetic north and true north, measured as an angle* Variation , any perturbation of the mean motion or orbit of a planet or satellite, particularly of the moon- Mathematics :* Bounded variation...

. It was important to the Six Sigma
Six Sigma
Six Sigma is a business management strategy originally developed by Motorola, USA in 1986. , it is widely used in many sectors of industry.Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects and minimizing variability in manufacturing and...

 movement by driving an improved understanding of the importance of Variation Management (a concept described in the Shingo Prize winning book, Breaking the Cost Barrier). Finally, It was important to describing the effects of changing variation on a system
System
System is a set of interacting or interdependent components forming an integrated whole....

, which is a central characteristic of Lean Dynamics
Lean dynamics
Lean dynamics is a business management practice that emphasizes the same primary outcome as lean manufacturing or lean production of eliminating wasteful expenditure of resources...

, a business management discipline focused on better understanding the impact of dynamic business conditions (such as sudden changes in demand seen during the 2008-2009 economic downturn) on loss, and thus on creating value.
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