The R&D Tax Aspects of 3D Printed Replacement Parts for Appliances

Manufacturers are now considering the use of 3D printers to print their replacement parts. Historically, the manufacturing of replacement parts has been a necessary inconvenience for appliance manufacturers. Firms are beginning to experiment with a just-in-time manufacturing model for replacement parts to determine if the approach will reduce costs while increasing the quality of their customer service.

The Research & Development Tax Credit

Companies in various industries, including firms that utilize 3D printing technologies have been taking advantage of the federal Research and Development (R&D) Tax Credit since 1981. Firms can receive a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

• New or improved products, processes, or software
• Technological in nature
• Elimination of uncertainty
• Process of experimentation

Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On December 18, 2015, President Obama signed the bill making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum Tax and startup businesses can utilize the credit against $250,000 per year in payroll taxes.

Companies Making the Switch to Printed Replacement Parts

The Asia Pacific arm of Electrolux, a Swedish home appliance manufacturer, recently teamed up with Spare Parts 3D, a Singapore-based startup, to evaluate the efficacy of an on-demand spare parts business model. The study will also address the logistic challenges of such a model.  On the surface, the model promises reduced cost and increased customer satisfaction, but a study is necessary in order to iron out the details.

IKEA, based out of the Netherlands, is another major firm that is considering 3D printing replacement parts as a way to increase customer satisfaction. IKEA wants to use 3D printing technologies to print replacement parts, which will allow customers to use their furniture longer. The idea is to give consumers more utility out of their products as well as to reduce the waste of throwing out furniture as a result of one part being broken. Additionally, IKEA is looking to develop 3D printed attachments to enhance the functionality of their products. The hope is that when a customer becomes tired of their old furniture, they can buy attachments that ultimately repurpose their furniture, therefore creating value that will make them want to keep it a while longer.

Boulanger, a major French household appliance retailer, is also realizing the advantages of 3D printing spare parts; the only difference is that they want their customers to do the printing. Consumers can download data files to spare parts and use their own 3D printers to print the parts they need. The firm believes that the customers’ ability to print their own parts will slow down product obsolescence.

Advantages of On-Demand Replacement Parts

There are many costs associated with manufacturing replacement parts. From a manufacturing cost standpoint, it is beneficial to make all replacement parts during the initial production run, however there are long-term storage costs associated with this method. Conversely, replacement parts can be made at a later date, but then the cost per part skyrockets due to tool change over costs and economies of scale.  The other issue with producing replacement parts is that they are usually stocked in warehouses that may not be close to the customer, leading to long lead times, higher shipping fees and diminished customer satisfaction. All of these factors lead to extremely high replacement part costs, making it clear why a replacement part can cost almost as much as the original price of the product. The power of 3D printing could revolutionize these dilemmas, primarily because a 3D printer has the ability to be installed at various warehouses, which results in lower production costs, shipping costs, and shorter lead times.

Considerations

There are some challenges that will have to be addressed. For example, firms would have to conduct studies to determine which parts should be 3D printed. Just because it is possible for a part to be printed does not mean it is economically feasible. To keep the cost of production down, a manufacturer will want to use a similar material for a large portion of their replacement parts, which allows them to buy the raw material in bulk and keep material costs low. Design teams will also have to test each potential part to determine if it can be 3D printed to the same standard as the original manufacturing process. Components for a dishwasher may require iterative testing to ensure that the part does not deform under high temperatures.

Furthermore, the 3D printing of replacement parts may be restricted to internal components because it may be hard to achieve an exact color match for external components. Parts like plastic gears may require additional finishing to ensure that the part operates smoothly. This means firms may have to develop efficient finishing processes to ensure that parts are produced quickly and perform as expected. Quality should not be sacrificed for reduced costs and increased availability. Firms may also be purchasing coordinated measuring machines to ensure that parts are made to specification and are ready to ship out.

Conclusion

The practice of 3D printing replacement parts for appliances is quickly catching on in the manufacturing world. Although the new business model has merit, the details have yet to be worked out. Many firms making the switch will experience major learning curves to overcome. Firms embracing the 3D printing of replacement parts should take advantage of the Federal Research and Development Tax Credit to offset costs of becoming acquainted with this new technology.

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Charles Goulding and Peter Saenz of R&D Tax Savers discuss on-demand 3D printing of replacement parts.