4 page case study UVI

Soma Bay Prospers with ERP in the Cloud

Soma Bay is a 10-million-square-mile resort community on the Egyptian shore of the Red Sea. It has many attractions that make it a first-class vacation paradise, including five hotels, a championship golf course, water sport facilities, a world-class spa, and luxury vacation homes. Soma Bay Development Company is headquartered in Hurghada, Egypt and has more than 2,000 employees.

Unfortunately, political upheavals and economic conditions have taken a toll on occupancy rates and profitability. When President Hosni Mubarak was overthrown during the Egyptian revolution of 2011, there was a sharp devaluation of Egyptian currency. In the years that followed, political conditions stabilized and the Egyptian economy recovered, but the tourism industry lost U.S. $1.3 billion after the downing of a commercial airliner over the Sinai Desert in late 2015. Soma Bay Development Company’s hotel occupancy rates plummeted from more than 50 percent in 2015 to 25 percent in the first quarter of 2016.

Foreign exchange fluctuations and political upheavals are forces beyond Soma Bay’s control, but what the company’s management can do during downturns is react intelligently by closely monitoring operations and costs. This is possible thanks to the company’s use of a JD Edwards Enterprise One ERP system from Oracle with applications and data residing in Oracle’s Cloud Infrastructure as a Service (Oracle Cloud IaaS).

In the past, Soma Bay Development Company had tried to run much of the company using unwieldy Excel-based systems. Managers had to manually manipulate spreadsheets to understand the basic drivers of profitability, and it often took too long to obtain the information needed for sound decision making. These systems made it difficult for Soma Bay to manage its aggressive growth plans, which included construction of 1000 new homes over a five-year period.

Mohammed Serry, Soma Bay Company’s CFO, and his team selected JD Edwards Enterprise One for a solution because it could create standardized business processes across functional areas and provide timely reports that explain the profitability of each business unit using a standard chart of accounts. The software can identify the profitability drivers and growth drivers of a business. Enterprise One seamlessly combines data from the general ledger and other financial systems with data from operational systems.

Soma Bay’s Enterprise One cloud platform makes it easy to create cash flow reports, project management reports, accounts receivable aging reports, facility management reports, and key performance indicator reports throughout Soma Bay’s distributed organization. Company management also appreciates Oracle Cloud IaaS disaster recovery capabilities. Several years ago, water from an upper floor flooded Soma Bay’s Cairo data center. The company was able to restore data and resume operations quickly because it had backups stored in Oracle Cloud.

JD Edwards Enterprise One contains more than 80 separate application modules designed to support a wide range of business processes. The software suite also features mobile applications that support both iOS and Android and can be used on smartphones and tablets. Soma Bay uses the JD Edwards Enterprise One modules for Financials, Procurement, Inventory Management, Job Cost, Real Estate Management, Homebuilder Management, Capital Asset Maintenance, Service Management, and Time and Labor. JD Edwards Enterprise One Homebuilder Management helps Soma Bay coordinate activities and analyze profitability throughout its home-building cycle down to the lot level. JD Edwards Enterprise One Real Estate Management streamlines financial, operational, and facilities management processes for finished properties, coordinating tasks among teams and providing a comprehensive management view of each unit. The Job Cost module shows ongoing costs for the real estate business, which helps management allocate expenses for materials, labor, and other needs and also track expenses against the budgets and forecasts established at the outset of each facilities management project. Managers can identify projects with codes and merge them with financial account numbers to determine budget expenses versus actual expenses. They can thereby verify if complex projects are on track and share expense data among divisions.

The Enterprise One software creates currency-neutral financial reports. This helps reconcile revenue from Soma Bay’s tourism division (which caters to Germany and other parts of Europe) with its home sales division (which is aimed primarily at Egyptians) to neutralize the effect of different currencies on financial results. Home building accounts for about 25 percent of corporate revenue.

Having a dual revenue stream mitigates risks. If the tourism business is slow, Soma Bay still has revenue from the real estate business, and vice versa. The ERP system provides the data required to closely track costs. For example, in 2017 Soma Bay spent 100 million Egyptian pounds (equivalent to approximately U.S. $5.7 million) on new construction. The Enterprise One system provided the information about cash management and cash flow for sustaining this level of expansion. Soma Bay can carefully monitor cash flow and payments to contractors.

During the 2016 downturn, Soma Bay used the Enterprise One cost management and profitability capabilities to provide detailed financial data that helped managers carefully control fixed operating expenses, helping to minimize losses. Enterprise One provided a solid understanding of costs and profitability, even though revenue came from different currencies and markets. It was able to show the impact of falling occupancy rates on the business, excluding foreign exchange effect, to help management measure overall performance by legal entity. This knowledge helped Soma Bay weather the downturn and implement an aggressive turnaround plan.

Today, 95 percent of Soma Bay staff members use the Enterprise One software in some capacity. The company has a more stable operating model. Occupancy rates at its five hotels are rising. Soma Bay Development Company is building 500 vacation homes in six seaside communities. According to Cherif Samir, Financial Controller for Soma Bay, being able to track every penny the company spends on a project has revolutionized the business.

Sources:  www.searchoracle.com, accessed January 30, 2018; David Baum, “Destination: Cloud,” Profit Magazine, Fall 2017; and www.somabay.com, accessed January 31, 2018.

Case Study Questions 1. Identify and describe the problem discussed in this case. What management, organization, and technology factors contributed to the problem?

2. Why was an ERP system required for a solution? How did having a cloud-based ERP system contribute to the solution?

3. What were the business benefits of Soma Bay’s new enterprise system? How did it change decision making and the way the company operated?