Citing facts drawn from the color-film processing industry that indicate a downward trend in the costs of film processing over 24 years, the author argues that Olympic Foods will likewise be able to minimize costs and thus maximize profits in the future. Even though it sounds ambitious, but not backed by logic. The management of the Olympic foods failed to recognize the cost of processing is not the only factor that contributes to the longevity of the organization. Moreover, they are in the Food industry and they are drawing their vision from the color film processing industry. Not necessarily, the trends going on in one industry will be the same in another industry.
The processing cost of photography has decreased over the period between 1970 and 1984 may be due to the increase in the scale of production, increase in demand, decrease in the price of raw materials like paper or evolution of technologies, and its rapid adaptation by the companies in that industry. Whereas, the price of the food has gone up only. Hence, the comparison was incompatible. Also, the decrease in color film processing doesn’t mean an increase in inefficiency. The author’s forecast of minimal costs and maximum profits rests on the gratuitous assumption that Olympic Foods' “long experience" has taught it how to do things better. There is, however, no guarantee that this is the case, nor does the author cite any evidence to support this assumption. Let's take a step back and consider the case of Kodak, which was founded in the year 1888. It was the most famous name in the world of photography and videography in the 20th century. Kodak brought about a revolution in the photography and videography industries. But, a series of wrong decisions killed its success. The company declared itself bankrupt in 2012. Though they had more than 100 years of experience and they failed. So, longevity and survival don’t always go hand in hand. Moreover, Olympic Food is in the industry for 25 years now. If they are still talking about improving efficiency, then when will they create value for its shareholder. A company can create value for the shareholders if they are taking on projects which are higher than their average risk appetite.
Secondly, it is not just the cost of processing the food. But there are factors like spoilage, contamination, and timely transportation which affect the food industry. Reducing the cost of processing is only one factor that will improve their efficiency. There are also external factors like competition from other firms in the industry, inflation, and supply crunch of raw materials which affects the profits of an organization. During covid times we have seen how the supply crunch of chips used in electronic items like electric vehicles, and mobiles had created a shortage of these products, and by increasing the cost of processing for the industry.
To bolster the argument, the author will have to provide evidence that the company has learned how to do things better as a result of its 25 years of experience. Presenting examples from industries more similar to the food-processing industry than the photographic industry can perhaps substantiate the author’s view. A description of the relevant market conditions and the relative performance of Olympic Foods against competitors would prove more substantive evidence to argue that Olympic Foods has improved processing costs. Based on this argument, it is unlikely that stockholders will be convinced that Olympic Foods’ long history will have a direct impact on its overall performance.
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