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MEASURING AND COMPARING VOLUME FLEXIBILITY IN THE CAPITAL GOODS INDUSTRY
Author(s) -
JACK ERIC P.,
RATURI AMITABH S.
Publication year - 2003
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2003.tb00216.x
Subject(s) - flexibility (engineering) , volume (thermodynamics) , capital good , metric (unit) , process (computing) , industrial organization , focus (optics) , capital (architecture) , econometrics , business , capital equipment , economics , microeconomics , computer science , operations management , physics , management , archaeology , quantum mechanics , optics , history , operating system , public good
This paper presents a theoretical framework for measuring volume flexibility and relating these measures to firm performance. We develop four metrics using the principle that a volume flexible firm can handle similar levels of uncertainty (as measured by sales variability) with smaller fluctuations in inputs (as measured by variability in cost of goods sold and variability in inventory levels). Then, using 20 years of Compustat data on 550 firms in the capital goods industry, we find that on three of four process‐based measures, small firms are more volume flexible. However, when we incorporate financial performance into our fourth metric, we find that large firms are more volume flexible. We conclude that, to be volume flexible is one thing, but to benefit from this flexibility, firms need to focus on the cost of being flexible.

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