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."
The annual report shared with stakeholders by Olympic Foods, describe how over the period the expenses have reduce which enables them in maximizing the profits. The arguments shared by the company contains some egregious flaws in reasoning making the conclusion doubtful.
The initial evidence cited by the company states a vague language. For instance, that costs of processing decreased due enhanced efficiency of the workers. For obvious reasons, good quality of work will reduce the expenses but there are additional parameters to support the argument. For instance, there could have been an economic growth over the years which might have reduced the price of required raw materials. Additionally, ingredients required to process food could have changed over the years and hence reducing the cost. Furthermore, initially the firm might have hired additional resources for the job and later realized the job could be done by fewer man-power hence leading to reduced cost.
In addition to the vague evidence above, the company draws inappropriate comparisons i.e., compares two different industries and to prove that an apple is equal to an orange. Drawing comparison between a colour-film processing industry and food-processing industry is irrelevant. Both the industries require different raw materials, expertise, and manpower to produce an end-product. They also cater to different sector of audience hence comparing them is not beneficial in determining the profits. Comparing the prices of raw materials required to produce the same product might help the workers in determining the profit value and help them in coming-up with strategies to reduce cost.
Furthermore, the company assumes, achieving a milestone of 25 years in the industry will help them in reducing the cost. Again, this evidence cites an overconfident conclusion. Even after being in the market for 25 years, multiple parameters might affect their production cost. For example, the fall in the stock-market may lead to reduced price of their stock hence leading to no profit or in worst case scenario, a severe loss. Additionally, the country`s GDP might suffer, and the increased cost of essentials nation-wide will lead to expensive production cost. Furthermore, a competitor company might sell the same product at a cheaper rate leading to their increased sales. This will reduce the profit for Olympic Foods.
The arguments presented the company are not sound or persuasive. The company has failed to convince the stakeholders as in how the company will experience maximised profit.