Charles R. Goulding and Harry Foxman consider Emerson Electric’s Industry 4.0 strategies in staying successful during difficult times.
Founded in St. Louis in 1890, Emerson Electric is one of America’s longest and greatest business success stories with 88,000 employees and over 200 manufacturing plants. Emerson has a large manufacturing automation business segment and is now undertaking the ambitious process of automating all of its global manufacturing plants. The January 9th issue of the Wall Street Journal contained an extensive article entitled “Help Wanted on the Factory Floor“. Despite the current high level of unemployment, the manufacturing and process sector is having a difficult time finding enough employees. The WSJ article covered a wide variety of companies including Generac, the leading generator manufacturer, and Yankee Candle, a dairy and a plastics manufacturer. The WSJ article focused on creative staffing solutions such as utilizing weekend college workers and existing company administrative staff, creating graveyard shifts for working parents, and raising wages. The reality is that creative staffing is a stop gap measure and automation is the real long term solution.
Emerson should be well-positioned to benefit from the widespread need for more automation. Emerson has both Western and Eastern global additive manufacturing centers. The Western U.S. center is in Marshalltown, Iowa and the Eastern center is in Singapore. These centers integrate 3D printing and other manufacturing processes which are the key to Industry 4.0. The additive manufacturing centers primarily focus on 3D printing valves and other similar automation components. The 3D printed control valves Emerson produces have been used in areas such as power generation, refining, oil and gas, and chemical industries. The Economist recently published an article that touched upon the increasing use of automation in factories, warehouses, and back offices during the pandemic. In the article, Emerson’s President of Digital Transformation, Stuart Harris, said that pervasive sensing (which combines AI and clever sensors) has helped Emerson’s revenues from remote monitoring increase by 25% over the past year.
Emerson CEO David Farr has taken a proactive approach to the COVID-19 pandemic. Farr has acted decisively to ensure Emerson successfully survives the pandemic, as well as make sure his employees are safe and healthy. Reconfiguration of factory floors was necessary for the safety of the workers, but Farr did not want to make permanent changes by building out for more floor space. Instead, the permanent change Farr wants to make includes incorporating more automation into their manufacturing plants, saying, “We’re going to have to bring in automation. We’re going to have to take labor out”. Less reliance on human labor and more focus on automation will help Emerson be better equipped to handle future pandemics and other unforeseen disruptions.
Companies engaged in 3D printing and self-automation in manufacturing may be eligible for the Research and Development (R&D) Tax Credit.
The Research & Development Tax Credit
Whether it’s used for creating and testing prototypes or for final production, 3D printing is a great indicator that R&D Credit eligible activities are taking place. Companies implementing this technology at any point should consider taking advantage of R&D Tax Credits.
Enacted in 1981, the now permanent Federal Research and Development Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayer’s business
- Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
- Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit has been used to offset Alternative Minimum Tax (AMT) for companies with revenue below $50MM and, startup businesses can obtain up to $250,000 per year in payroll tax cash rebates.
We are impressed that Emerson is automating all of its own facilities. With Emerson’s current leadership and automation strategies, the company is well equipped to handle various challenges businesses face today. Presuming they include their 3D printing expertise in this endeavor they should be able to show their customers the actual potential of Industry 4.0.