GMAT Essays (AWA)

Analysis of an Argument
Question Prompt (Source: Official Guide to the GMAT 12th Edition)

The following appeared as part of an annual report sent to stockholders by Olympic Foods, a processor of frozen
foods:
"Over time, the costs of processing go down because as organizations learn how to do things better, they become
more efficient. In color film processing, for example, the cost of a 3-by-5-inch print fell from 50 cents for five-day
service in 1970 to 20 cents for one-day service in 1984. The same principle applies to the processing of food. And
since Olympic Foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to
minimize costs and thus maximize profits."

Discuss how well reasoned . . . etc.


Essay:
The argument placed forward by Olympic Foods in its annual report sent to stock holders is not convincing. The example put forward is not appropriate and the conclusion is open to attack because of a number of reasons.
First of all, "learning how to do things better" is too vague a statement to site as a reason which can improve process efficiency. Moreover a continuous increase in efficiency over a very long period as 25 years would certainly depend on many factors not cited in the argument. Even if the process efficiency increases over a period of 25 years it may not be sufficient to minimize costs and maximize profits. Minimizing costs through this method will also require action on other factors which contribute to the cost of the final product namely raw materials, energy, labor, tax, excise, and other parameters related to operation, maintenance and plant infrastructure. These factors are certain to vary significantly over a long period of 25 years and it would be inappropriate to not include their effect on cost and thus profit.

Secondly the said company has incorrectly compared a frozen food processing industry to a color film processing industry. Color film processing involves completely different technology and set up. Even its effect on the market can be significantly different from that of a frozen food processing industry. The fact that the processing cost and time has reduced in a color film processing industry over a period of 14 years throws no light upon whether Olympic Foods would minimize costs and maximize profits in a period of 25 years. It may be possible, though unclear, that the film processor achieved such results because of new technology, high market demands, and drastic reduction in processing costs. Or it could also have been possible that the company was taken over by a more technologically advanced firm. Nonetheless the given example is not sufficient and convincing.

Olympic Foods in order to convince their stockholders needs to cite more evidence in support of their claim. These supportive may include technological improvements with examples, adoption of lean manufacturing systems like six sigma, TPS or TQM, conditions of the present market and actual proof of increased profit and decreased cost.