Case Study

Global pharmaceutical firm harnesses Six Sigma to rationalize property tax calculations and increase profit margin

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Client: A leading pharmaceutical and consumer healthcare company

Business need addressed: The company needed to reduce its property tax payable to increase profit margins and cash flow

Solution: Genpact combined its subject matter expertise and Six Sigma methodology to physically verify and evaluate fixed property assets

Business impact:

  • Prevented revenue leakage of approximately $8.8 million a year by establishing a process for physical verification and evaluating fixed assets
  • Annual savings of $2.4 million by reducing property tax on fully depreciated assets

Business challenge

The client is one of the world’s largest pharmaceutical and consumer healthcare companies with operations in more than 150 countries. Genpact provides a variety of services to the company, including accounts payable, procurement, supply chain accounting, fixed asset accounting, general ledger, payroll, taxation, and global reporting, across multiple regions. To stay competitive, the organization was keen to improve its margins, reduce cost, and control revenue leakage in its business operations. However, it faced the following challenges:

  • Lost revenue due to property tax payments on fully depreciated assets that were not being physically verified at regular intervals
  • Difficulty in estimating property tax rates because of the lack of a readily available report covering location, state, and other details on fully depreciated assets
  • Absence of a standard mechanism to identify assets that needed to be retired or disposed off 

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Genpact solution

By combining subject matter expertise and Six Sigma methodology, Genpact designed a process to physically verify and evaluate fixed assets, such as property. Rigorous discussions with the client and value-stream mapping identified a number of gaps in the property tax process:

  • Absence of a structured process or designated person at a business unit or regional level to physically verify the property at regular intervals 
  • Lack of awareness about the implications of property tax on fully depreciated assets among business units and geographical sites

Our solution included:

  • Analyzing granular data to track the fully depreciated assets:
    • Rigorous analysis helped to identify fully depreciated assets that were no longer in use and assess their tax impact
    • Once identified, Genpact set target metrics to retire those depreciated assets from the fixed assets register
    • Genpact adhered to strict timelines during the implementation to gain benefits from the US tax authority as per US tax laws before final year accounting
  • Redesigning the process to consolidate and evaluate assets. Genpact:
    • Designed a report in the company’s ERP to aggregate fixed-asset data in a single place, which eliminated manual work and increased accuracy
    • Shared knowledge with the client on the criticality of regular and timely physical verification of fixed assets, which helped identify and retire fully depreciated assets not in use
    • Redesigned the physical verification process so that entity-level gatekeepers became responsible for verifying and submitting the list of assets to be retired from the asset register on a quarterly basis
    • Set up a process to evaluate all assets in the fixed-asset register and retire or sell those that were not required for business purposes

Business impact

Using its knowledge of fixed-asset accounting and US tax laws, Genpact delivered significant benefits to the client, such as:

  • The process for physical verification and evaluation of fixed assets prevented future revenue leakage of approximately $8.8 million a year
  • Annual savings of $2.4 million by reducing the property tax payable on fully depreciated assets no longer in use, which led to a direct positive impact on the client’s profit margin and cash flow

By transforming its approach to evaluating the property tax to be paid on fixed assets, Genpact enabled the pharmaceutical firm to generate significant savings and improve its competitive position.

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