Guest Post: Getting Paid for Getting Lean – Beyond Training

The lights went out the instant the squirrel died.

That was the conclusion drawn by a friend and colleague of mine at a mid-sized manufacturing plant in Rhode Island after he investigated the cause of a recent blackout that stopped production for hours, idling dozens of workers and wreaking havoc with the daily schedule. Apparently, an adventurous but ill-fated squirrel had climbed under the transformer cover outside of the building and gnawed through the insulation on a power line, eventually – and briefly -- becoming part of the circuit. This event led my friend to note that continuous efforts at product and process improvement extend beyond the manufacturing cell, the shop floor and even the factory itself.

Much has been written about the benefits of lean manufacturing. Lean practices help to reduce waste, improve delivery time and slash the total cost of production. Ongoing, evolutionary efforts that focus on potential problem areas help to create a cycle of continuous improvement. Still, worthwhile as these goals are, achieving them can be expensive in the short term. Fortunately, there is money available to help cover the costs.

My job takes me from factory to factory, where I talk to people in engineering, manufacturing, management, accounting and other disciplines. Over the years, I have observed that all funding programs are not created equal, and some of the most valuable ones are often overlooked entirely. For example, many companies are intimately familiar with Workforce Training Grants, which subsidize the cost of educating workers about lean techniques and related methods. However, many of these same companies are either unaware of Research Credit Programs or mistakenly believe that these important funding sources aren’t available to them.

Part of the problem with misconceptions about research credit programs can be found in the name itself. Many people believe that “research” is a narrow area of activity limited to people in white lab coats. In reality, though, the term is much, much broader than that. For most such programs, everything from product development all the way through the plant to incremental improvements in work flow and manufacturing cell design can qualify for funding.

To be eligible, a specific project must meet three specific tests:

1)    A discreet and measurable technical improvement is intended.

2)    Technological uncertainty exists regarding the intended improvement.

3)    A process of experimentation is undertaken in an effort to overcome uncertainty.

For example, an effort to reduce scrap by ten percent on an existing line could qualify. Why? Because the goal is technical and measurable, it is not clear how or whether the desired goal can be achieved, and the effort will require trying and evaluating various process changes.

The problem with the squirrel is similar. Keeping curious critters out of a transformer housing is one issue. The fact that the plant identified a single point of failure is another.  Efforts to develop an improved and more reliable power management system could form the basis of another eligible project.

Workforce training grants are intended to provide new skills for your workers. Once the workers are actively trying to develop improved technical processes, they may be engaged in projects that are eligible under one or more research credit programs.

Federal and state research credits can be substantial, amounting to a significant portion of total expenses. In addition, companies can often go back up to three years into the past to find and claim eligible projects. The rules for the various programs change from time to time, so help from a qualified practitioner is highly recommended.

Thanks for reading this, and watch out for squirrels!


This guest post was authored by Otto Kunz, CPA, EA, MBA, founder of  Tax Credit Advisors, LLC. He is a technologist with over twenty years of experience in manufacturing technology and related software development. Since 1994, Otto has worked with companies throughout the United States and Canada in order to secure funding for technical development, supporting efforts to improve technological competitiveness in North America.  In addition to his work with TCA, he is currently a member of the adjunct faculty at Assumption College in Worcester, Massachusetts where he lectures on taxation and related topics. Otto may be contacted at (508) 842-3232 or for a free consultation to determine if your product and process efforts, including those within your lean journey, may be eligible for research credit support.