Is your business, like many others, struggling with the high cost of doing business in the United States? Many companies are constantly looking for ways to reduce cost, improve quality, speed deliveries, and enhance safety. Manufacturing companies have found ways to meet these goals by implementing “lean manufacturing.”
Lean manufacturing, or lean production, is a systematic method for minimizing waste within a manufacturing system, without sacrificing productivity. Lean also takes into account waste created through overburden and unevenness in workloads. By focusing on improving the "flow," or smoothness of work, lean can provide a set of tools that assists in the identification and steady elimination of waste. Lean improves quality, while reducing production time and cost.
Lean defines waste as anything not providing value to the customer, and can be categorized as follows:
Non-value added activities
Employees not fully utilized
Some recent examples of the results achieved by manufacturers who have implemented lean include:
Tax Credit for Lean Manufacturing
If you are employing lean manufacturing, or other productivity or process improvements, you may also be able to apply the cost of your improvements towards refundable tax credits. Many manufacturing companies are seeing significant tax savings by applying for the Research and Experimentation Tax Credit (“credit”).
Originally enacted in 1981, after several extensions, the credit was finally made permanent in 2015. The credit is intended to incentivize businesses to increase their spending within the United States on research and experimental (”R&E”) activities. What few realize is that the R&E credit doesn’t have to be anything ground breaking.
The credit is not limited to any particular industry, but the manufacturing sector is the number one industry claiming it. Another interesting fact is that this credit is largely claimed by small to mid-size businesses, with more than 70% of claimants having annual revenues of less than $50 million.
Expenses that may be eligible for the credit include the wages of employees who spend all or a portion of their time on research and development; supplies used in the creation of prototypes and testing materials; and a percentage of costs paid to outside contractors who are working on behalf of the entity on these activities.
How do you know if your business activities are eligible for the Research and Experimentation Tax Credit? There is a four-part test:
Examples of activities related to lean manufacturing that may meet the test include:
If your company could benefit from implementing lean, or might qualify for a refundable Research and Experimentation Tax Credit, reach out to your business advisors to discuss how they can help you improve your business and save you money.
This article was written in collaboration with Summit Safety & Efficiency Solutions, a premier safety, quality, and industrial engineering firm that provides consulting and training services including implementing lean manufacturing. Summit also helps clients leverage federal, state, and local training grants and tax credits yielding tens of thousands of dollars.