The present manufacturing environment is characterized by a number of changes which poses challenges to a typical manufacturing unit. Time demands a shift from the traditional manufacturing strategies as they do not fit to present market competition. A flexible systems strategy has to be designed for remaining competitive in the market and perform well. For designing strategies and policies it is important to know the factors that influence performance of the system. The aim of this paper is to assess the impact of the flexibility of manufacturing system components on competitiveness of SMEs in northern India. A questionnaire based survey was conducted in the SMEs across northern India analysing three sectors namely automotive, machine tool and light engineering (mechanical components and equipment). The study contributes to the existing literature by empirically investigating the impact of machine, material handling and worker flexibility on competitiveness of manufacturing firms. This paper presents a Structural Equation Model displaying the impact of flexibility of manufacturing system components on competitiveness of SMEs.