Olympic Foods AWA
"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 a five-day service in 1970 to 20 cents for a 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."
The author concludes that since costs of processing decrease over time and organizations become more efficient over time, therefore profitability must increase correspondingly. The author supports his assumption by an analogy to color film processing industry. The argument is flawed because of the "faulty analogy" and the failure to evaluate all factors that have changed over time.
Firstly, in his analogy the author makes a flawed equation. The color film industry has seen exponential growth because of the technological advances that have rapidly brought down its costs over the last decade. On the contrary, the frozen food processing industry has employed the same production methods over the years.
Secondly, the author fails to consider that, the costs of raw materials such as ink, paper and printers and other tools have dropped over the last decade, thus increasing profitability for the film industry. However, raw material costs to the food industry have seen no such fall.
Further, the author’s assumption that organizations become more efficient over time fails to address whether the increase in efficiency can overshadow rising costs in other areas. A quantitative measure of the increase in efficiency of the organization has not been provided. Thus, it is not possible to ascertain positive growth.
In conclusion, the author has missed several key points while drawn a conclusion. The factors on which the conclusion is based are either flawed or incomplete. Therefore, minimization of costs and maximization of profits is not an easy task for Olympic 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 a five-day service in 1970 to 20 cents for a 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."
The author concludes that since costs of processing decrease over time and organizations become more efficient over time, therefore profitability must increase correspondingly. The author supports his assumption by an analogy to color film processing industry. The argument is flawed because of the "faulty analogy" and the failure to evaluate all factors that have changed over time.
Firstly, in his analogy the author makes a flawed equation. The color film industry has seen exponential growth because of the technological advances that have rapidly brought down its costs over the last decade. On the contrary, the frozen food processing industry has employed the same production methods over the years.
Secondly, the author fails to consider that, the costs of raw materials such as ink, paper and printers and other tools have dropped over the last decade, thus increasing profitability for the film industry. However, raw material costs to the food industry have seen no such fall.
Further, the author’s assumption that organizations become more efficient over time fails to address whether the increase in efficiency can overshadow rising costs in other areas. A quantitative measure of the increase in efficiency of the organization has not been provided. Thus, it is not possible to ascertain positive growth.
In conclusion, the author has missed several key points while drawn a conclusion. The factors on which the conclusion is based are either flawed or incomplete. Therefore, minimization of costs and maximization of profits is not an easy task for Olympic Foods.
