Measuring and Comparing Volume Flexibility Across Indian Firms

This paper measures and compares volume flexibility across 500 Indian firms using financial statement analysis to derive useful insights. These firms from six broad sectors were classified into three categories on basis of sales revenues. The results suggest that small firms derive their volume flexibility competitive advantage from their ability to use production technology to support output fluctuations. However, this does not enhance their financial performance. When sales demand uncertainty, technology and financial performance are measured simultaneously on a composite measure, large firms are found to be more volume flexible. Volume flexibility measures are found insignificant for sectors other than power and manufacturing. The results also indicate that inventory fluctuations are not always in line with the income and expenses for a firm. This is a unique aspect of Indian firms indicating that the inventory controls are not as strong as in developed countries