BATAAN PENINSULA STATE UNIVERSITY

Telefax: (6347) 2372350 GRADUATE SCHOOL

(6347)2375830 City of Balanga 2100 Bataan, Philippines

Website:www.bpsu.edu.ph Email: bpsu_gs@yahoo.com

A Journal Review of

Strategic Capacity Planning Process in Construction Business

MBA 107

Operations Management

Elaisa Jerica G. Gonzales

 BATAAN PENINSULA STATE UNIVERSITY
Telefax: (6347) 2372350 GRADUATE SCHOOL
(6347)2375830 City of Balanga 2100 Bataan, Philippines

Website:www.bpsu.edu.ph Email: bpsu_gs@yahoo.com

I. Summary of the Article

The paper present the capacity management strategy of Okanagan

Construction, a steel framing construction company for both residential and commercial

customers. The paper defines capacity as the amount of available resources or the

output achievable to meet the operational challenges over a specified period of time.

Capacity can significantly influence the quality of products and services and, therefore,

it has an influence on the customer satisfaction. Capacity management is undoubtedly

one of the toughest management challenges in running an organization.

The paper examines the capacity profile of Okanagan and proposes a strategy

for capacity building based on time horizon; based on individual, business and industry

levels; and finally based on components. The paper provides a strategic direction for

Okanagan to bid for bigger projects in partnership with prominent players rather than

stay focused on smaller projects. The approach recommends ensuring the necessary

resource and capital base for the company before it decides to go solo on bigger

projects.

Company Overview

The company came into existence in 2007 as a general contractor and accepting all

kind of renovation works on residential and commercial buildings. After couple of years

into the business, the company started focusing on the framing business. The company

would accept the challenge to experiment with the use of metal framing for household
 BATAAN PENINSULA STATE UNIVERSITY
Telefax: (6347) 2372350 GRADUATE SCHOOL
(6347)2375830 City of Balanga 2100 Bataan, Philippines

Website:www.bpsu.edu.ph Email: bpsu_gs@yahoo.com

and buildings when their main competitors were focused on wood framing business.

That’s how the company differentiated itself and created a niche market. Capacity

management at Okanagan construction starts with an analysis of demand and capacity

profiles. This leads to the development of capacity management strategies for the

company on a long range, intermediate range and short range basis.

Capacity Analysis

Okanagan's capacity strategies reveal that the following company's strengths:

 The company uses the non-unionized and flexible work force that allows

the company to have a flexible staffing level to match the demand and

avoiding work force idleness and overtime.

 The company maintains flexible operations and this allows the company to

bid for contracts even in the remotest of regions.

 The availability of several sub-contractors is a blessing for the company’s

business

However, the following weaknesses are also noted:

 lack of long range capacity planning

 The company relies heavily on flexibility and lacks capital base.

 During housing booms, fewer skilled workers are available which are lured by the

bigger construction companies

 BATAAN PENINSULA STATE UNIVERSITY
Telefax: (6347) 2372350 GRADUATE SCHOOL
(6347)2375830 City of Balanga 2100 Bataan, Philippines

Website:www.bpsu.edu.ph Email: bpsu_gs@yahoo.com

 A substantial reduction in lumber prices or a substantial price increase in metals

could potentially negate the cost advantage the company is enjoying.

 Okanagan needs sub-contractors that meet the minimum quality standards

 Finally, one major weakness of Okanagan's strategy is its inability to raise

sufficient up-front capital to bid for larger projects and capture the untapped

market potential for bigger residential projects.

Implication of the Results of the Study

The analysis is appropriate and imperative due to heightened demands on firms

to ensure survival in today’s dynamic business domain. Maintaining accurate and

efficient information is vital for firms to make the best business decisions therefore a

shift in mindset and methodology is crucial. Below are the potential benefits of using

EBAC as the study presented in this paper:

 BATAAN PENINSULA STATE UNIVERSITY
Telefax: (6347) 2372350 GRADUATE SCHOOL
 (6347)2375830
Using the more accurate and efficient EBAC
City of Balangaresults in significant
2100 Bataan, Philippines cost
Website:www.bpsu.edu.ph
changes as compared to ABC or TCS. The EBAC uses
Email: efficiency as the main
bpsu_gs@yahoo.com

determinant to calculate the absorption. An output is efficient if it requires lesser

input to produce a given number of outputs.

 EBAC is a methodology that is easy, appropriate and convenient to apply.

Firms using ABC could instantly explore the alternative and improved EBAC

with no new data required.

 EBAC use practical capacity as the base in the denominator which is rightfully

applicable because ABC and EBAC is resource consumption based model and

the use of budgeted capacity could lead to distorted product cost and

incorrect decisions.

In the other hand, the following are the lists of the possible limitations of the study

as well as the use of EBAC method:

 The paper only presents the benefits of using EBAC but not its possible

weaknesses. There is no significant limitations presented in the study that may be

worthwhile to mention particularly the trade-offs involve in using EBAC instead of

TCS and ABC.

 BATAAN PENINSULA STATE UNIVERSITY
Telefax: (6347) 2372350 GRADUATE SCHOOL
 (6347)2375830
Adaptability of EBAC Costing System is not
City of suitable forBataan,
Balanga 2100 all kind of companies
Philippines

Website:www.bpsu.edu.ph
because small companies have not many resources Email:
to adapt it and have too many
bpsu_gs@yahoo.com

activities but size of transactions is too low.

 Collection and preparation of data is time-consuming.

 Costs more to accumulate and analyze information. Source data isn't always

readily available from normal accounting reports. Data Collection is not be as useful

for companies where overhead is small in proportion to total operating costs.

II. Recommendation on Expansion of Results

This paper presents the Efficiency Based Absorption Costing (EBAC) by giving

examples from different industry and comparing the results to ABC and TCS. This

method of presenting ideas is effective because there will be comparisons of results for

all the methods from different industry where we can easily depicts how the results of

entity’s operation will change by using EBAC. However, measuring the efficiency of

certain product line, its input and output should not be the only basis for cost allocation

of overhead wherein there may other considerations like business complexity,

availability of data, benefits over the cost involve in obtaining the information needed

etc. Aside from using sample problems to discuss the matter, a deeper analysis may be

obtain if there will be an actual application of EBAC method for a certain company.

Actual application may help us see how efficient, applicable or easy to apply the method

in actual setting or even forecast if any, its limitations. In addition, the use of graphs or
 BATAAN PENINSULA STATE UNIVERSITY
Telefax: (6347) 2372350 GRADUATE SCHOOL
(6347)2375830
any visual aids may be adopted in presenting
Citythe ideas in
of Balanga relating
2100 Bataan, the results of the
Philippines

Website:www.bpsu.edu.ph
three methods for easier comparison especially for those who do not have any
Email: bpsu_gs@yahoo.com

background in accounting.