The following appeared as a 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 organization learns how to do things better, they become more efficient. In color film processing, for example, the costs of a 3-by-5 inch print fell from 50 cents for 5-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 term experience will enable us to minimize costs and thus maximize profits. "
The authors claims that the 25 years long experience is sufficient for the stockholders to expect that the cost would be minimum and the profits would be maximum. The author bases his conclusion on the fact that over time organizations become more efficient and, the cost of processing goes down. The author in the premise gives evidence of how the color industry with its experience has been able to reduce the processing costs.
However, the argument made by the author is flawed, as in drawing the conclusion the author assumes not only that cost is the only factor that is crucial for the stockholders, but also that there 25 year long experience alone will be enough for Olympic foods to minimize cost and maximize profit. Furthermore, the author relies his argument on the evidence of another industry and on just one example where costs were minimized. He overlooks, the fact that the scope could be lesser than what he expects.
The first issue that needs to be addressed is the assumption that even if the Olympic Foods is able to reduce the cost of processing, it is certain that they will become more efficient. Maybe the labor hired is not working well to generate output as per the number of hours worked. Hence, it is not certain that they will be efficient. They may, however, be using latest technologies to minimize the hours required in processing but due to other factors, they are not efficient.
Moreover, the fact that just by reducing cost of processing, profits could be maximized assumes that the main cost is of processing and as the cost of processing has decreased the cost of raw material used and labor wages have remained constant. This is a serious flaw. Maybe the labor needed to work on high technology machines installed to reduce processing cost is highly skilled and take higher wages. Thus, even with the 25 year experience, they may not be able to minimize costs.
Another flaw is that the author assumes that cost is the only crucial factor for the stockholders. It may be the case where they want to maximize profit but not overlook the quality of food delivered. Maybe Olympic Foods could compromise on quality of food to minimize the costs. And hence, it may bring shame to the stockholders.
Major flaw is that the evidence provided by the author may hold true for most industries including the color industry, but may not hold for food industry. Moreover, the author gives only one example where the cost of processing has been reduced. It will not be correct to generalize the argument made by the author based on just one evidence.
In conclusion, the author should give substantial evidence to strengthen his argument. As it stands, the argument is flawed for reasons indicated.
"Over time, the costs of processing go down because as organization learns how to do things better, they become more efficient. In color film processing, for example, the costs of a 3-by-5 inch print fell from 50 cents for 5-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 term experience will enable us to minimize costs and thus maximize profits. "
The authors claims that the 25 years long experience is sufficient for the stockholders to expect that the cost would be minimum and the profits would be maximum. The author bases his conclusion on the fact that over time organizations become more efficient and, the cost of processing goes down. The author in the premise gives evidence of how the color industry with its experience has been able to reduce the processing costs.
However, the argument made by the author is flawed, as in drawing the conclusion the author assumes not only that cost is the only factor that is crucial for the stockholders, but also that there 25 year long experience alone will be enough for Olympic foods to minimize cost and maximize profit. Furthermore, the author relies his argument on the evidence of another industry and on just one example where costs were minimized. He overlooks, the fact that the scope could be lesser than what he expects.
The first issue that needs to be addressed is the assumption that even if the Olympic Foods is able to reduce the cost of processing, it is certain that they will become more efficient. Maybe the labor hired is not working well to generate output as per the number of hours worked. Hence, it is not certain that they will be efficient. They may, however, be using latest technologies to minimize the hours required in processing but due to other factors, they are not efficient.
Moreover, the fact that just by reducing cost of processing, profits could be maximized assumes that the main cost is of processing and as the cost of processing has decreased the cost of raw material used and labor wages have remained constant. This is a serious flaw. Maybe the labor needed to work on high technology machines installed to reduce processing cost is highly skilled and take higher wages. Thus, even with the 25 year experience, they may not be able to minimize costs.
Another flaw is that the author assumes that cost is the only crucial factor for the stockholders. It may be the case where they want to maximize profit but not overlook the quality of food delivered. Maybe Olympic Foods could compromise on quality of food to minimize the costs. And hence, it may bring shame to the stockholders.
Major flaw is that the evidence provided by the author may hold true for most industries including the color industry, but may not hold for food industry. Moreover, the author gives only one example where the cost of processing has been reduced. It will not be correct to generalize the argument made by the author based on just one evidence.
In conclusion, the author should give substantial evidence to strengthen his argument. As it stands, the argument is flawed for reasons indicated.
