Why Manufacturers Need Research & Development
The world is constantly changing and evolving. The same should be true in manufacturing. The half-life of knowledge is now measured in years, rather than in decades or centuries. Discovering new ways to source material, manufacture goods, store and then distribute inventory must be a continuous effort to remain competitive.
Research and Development (R&D) is one way a company grows, changes and improves its business. Classic R&D is the process of examining market conditions and consumer needs then developing new products to meet those needs.
R&D can be divided into five different categories. Each has its own distinct benefits.
- Unit process level improvements affect existing manufacturing processes by improving productivity, quality and environmental benefits. R&D creates new processes and new materials that did not exist before.
- Machine level improvements create improved capability and capacity for existing processes. Innovations result in safety, energy consumption and environmental improvements. At this level completely new equipment for manufacturing companies is created.
- System level improvements include improvements that relay information to controls, sensors and networks. Improvements to quality systems, resource management, distribution and tracking occur as well.
- Environmental or societal improvements change the quality of the workforce and general competitiveness. R&D affects employee health and safety. It also improves training and education that improves overall knowledge.
- Product R&D provides new products to the ever growing consumer market. The pharmaceutical market is a quintessential example of need for product R & D
Research and development prevents local and global stagnation. It expands basic scientific knowledge which leads to new patents and publications. R&D supports knowledge based industries that affects many other industries.
The accounting profession requires research and development expenditures to be booked as an expense. For example, the rules are so stringent immediate expensing is required when a new building is acquired exclusively for R&D. Current financial results suffer, but in reality an asset is being built. This accumulated knowledge is an asset that current accounting standards prohibit from being capitalized and placed on the balance sheet.
R&D is typically one of the first departments to be trimmed when a company has a bad year. This practice eventually impairs the value of the company, because the R&D asset begins to erode When discussing your financial results with investors and lenders be prepared to explain your R&D expenditure history and its results.
In the book Great Again, Hank Nothhaft, writes “In our arrogance and our own naiveté, we told ourselves that so long as America did the ‘creative’ work, the inventing, we could let other nations do the ‘grunt’ work – the manufacturing We did not yet understand that a nation that no longer makes things will eventually forget how to invent them.”
Businesses that have an R&D strategy have a greater chance of success than businesses that do not. Contact us to learn about the services we provide or to discuss your most important business issues. Schedule a free evaluation by calling us at (973) 998-9801
NJMEP also has an estimator so that you can determine your savings via R&D tax credits. Download your estimator today by filling out the form below!
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