Do Your Custom Manufacturing Quality Approval Processes Qualify for R&D Tax Credit?

Aug 21, 2018 9:00:00 AM

quality approval processes

In today's global market, being profitable often comes down to controlling costs. With material, labor, equipment, and shipping costs seemingly increasing every day, companies are looking for dependable manufacturing partners they can count on to deliver products on time, within budget and to a high quality standard.

To meet these standards, most manufacturers rely on the Production Part Approval Process (PPAP) to ensure they produce (and receive) top quality products. But did you know that your PPAP could also qualify you for an R&D tax credit?

Here's how your custom quality approval process could be more valuable than you realized.

Why Generate PPAP Submissions?

Originally established by the Automotive Industry Action Group (AIAG), the PPAP was designed as an industry standard to create confidence in suppliers and their processes. The PPAP has since been adopted by manufacturers across all industries as a way to demonstrate the quality of their products and processes to customers.

The PPAP submission process is complex but essential for signaling to customers that you understand their specifications and your process will be repeatable throughout the duration of the production run. A PPAP submission is typically included as part of the quoting process, but a customer may require the information as part of the first part approval process. It's best to be prepared and already have the PPAP ready to go, so you can demonstrate your reliability to customers at a moment's notice.

Because the process involves testing and verification of your internal new production processes, it may qualify for an R&D tax credit. However, meeting tax credit requirements will ultimately come down to the specific elements documented in your PPAP submission.

PPAP Elements

The generally recognized PPAP consists of 18 elements, but depending on the customer and scope of the job, not each element will be relevant to each manufacturing process.

The most critical PPAP elements are as follows:

  1. Design records with all specifications documented
  2. Engineering change documentation (may include Engineering Change Notice - ECN)
  3. Customer Engineering Approval
  4. Design Failure Mode and Effects Analysis (DFMEA)
  5. Process Failure Mode and Effects Analysis (PFMEA)
  6. Records of material and performance testing
  7. Control Plan
  8. Process Flow Diagram (PFD)
  9. Part Submission Warrant

Again, not every element will apply to your process. But regardless of which elements you ultimately include in your PPAP submission, the most important thing is that the process is defined, monitored, improved, and documented. This documentation will be essential for securing the R&D tax credits needed to help your company grow.

Qualifying Activities

To determine whether your custom manufacturing quality approval process qualifies for an R&D tax credit, it's best to use the Four-Part Test. This test gauges your PPAP activities against four criteria: permitted purpose, technical uncertainty, process of experimentation, and technological in nature. If your PPAP activity meets all four criteria, it will likely qualify for an R&D tax credit.

Long-Term Benefits

While the process of completing a PPAP submission may put some additional strain on your personnel, it's vital for establishing customer confidence and building quality  relationships. You can then see any potential R&D tax credit as an added bonus made available because of a process you already have in place.

But you can only reap those benefits by being diligent in your documentation and taking advantage of the unique opportunity PPAP presents. Doing so can help your company grow and keep you competitive in an ever-changing manufacturing landscape.

Find out How Big Your Credit Could Be