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.
Organizations need to work constantly on restructuring their processes to cut the processing costs to stay competitive if they are to see zooming profits. Continuous improvement in processing leads to reduction in operational costs which ultimately provide a boost to savings & finally increased profits & value for money of investment.
The author wants to put forward this point by giving example of color print processing in annual report given to stockholders. If one can look closely, author states that cost of processing of a 3x5 inch print cell was 50 cents for 5 service days in 1970. In 1984 for the same; processing cost has become 20 cents per day of service. But actually the cost of processing has increased from 10 cents for each day, to 20 cents per day. So authors view becomes flawed.
Also over the time, author has not considered the input cost in the form of raw material required for processing, processors’ charges & other misc. expenses. If these costs increase over a period of time then they hamper profit making substantially.
Organizations strive continuously to work for reducing input costs. Today, for example companies like TATA Motors employ cost reducing techniques such as Value stream mapping & value engineering to find out non-value adding processes to organization & reduce process cost by eliminating them. The claim author lacks the point that color film processing organization works continuously on cost cutting path as nowhere it is stated. Being in the market for longer time doesn’t mean that company provides cost effective & valued product as no parameter is stated to judge the performance of organization.
Author also gives example of Food processing industry. But statistically, no data is
available to analyze actual performance of food processing organization over a certain period of time. Olympic foods has reached a landmark of 25 years of service in food processing area, it doesn’t provide any data to judge its cost effectiveness in this time span.
To sum up, author should not only have considered the input raw material costs, labour costs etc to consider the profit but also he should have provided the data to judge the similarities of cost-effectiveness of Food processing & color film processing organizations as the company is food processing organization.
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.
Organizations need to work constantly on restructuring their processes to cut the processing costs to stay competitive if they are to see zooming profits. Continuous improvement in processing leads to reduction in operational costs which ultimately provide a boost to savings & finally increased profits & value for money of investment.
The author wants to put forward this point by giving example of color print processing in annual report given to stockholders. If one can look closely, author states that cost of processing of a 3x5 inch print cell was 50 cents for 5 service days in 1970. In 1984 for the same; processing cost has become 20 cents per day of service. But actually the cost of processing has increased from 10 cents for each day, to 20 cents per day. So authors view becomes flawed.
Also over the time, author has not considered the input cost in the form of raw material required for processing, processors’ charges & other misc. expenses. If these costs increase over a period of time then they hamper profit making substantially.
Organizations strive continuously to work for reducing input costs. Today, for example companies like TATA Motors employ cost reducing techniques such as Value stream mapping & value engineering to find out non-value adding processes to organization & reduce process cost by eliminating them. The claim author lacks the point that color film processing organization works continuously on cost cutting path as nowhere it is stated. Being in the market for longer time doesn’t mean that company provides cost effective & valued product as no parameter is stated to judge the performance of organization.
Author also gives example of Food processing industry. But statistically, no data is
available to analyze actual performance of food processing organization over a certain period of time. Olympic foods has reached a landmark of 25 years of service in food processing area, it doesn’t provide any data to judge its cost effectiveness in this time span.
To sum up, author should not only have considered the input raw material costs, labour costs etc to consider the profit but also he should have provided the data to judge the similarities of cost-effectiveness of Food processing & color film processing organizations as the company is food processing organization.
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