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MEASURING AND COMPARING VOLUME FLEXIBILITY IN THE CAPITAL GOODS INDUSTRY

MEASURING AND COMPARING VOLUME FLEXIBILITY IN THE CAPITAL GOODS INDUSTRY 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Production and Operations Management Wiley

MEASURING AND COMPARING VOLUME FLEXIBILITY IN THE CAPITAL GOODS INDUSTRY

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Publisher
Wiley
Copyright
© 2003 Production and Operations Management Society
ISSN
1059-1478
eISSN
1937-5956
DOI
10.1111/j.1937-5956.2003.tb00216.x
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

Production and Operations ManagementWiley

Published: Dec 1, 2003

References