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 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 maximize profits.”
This argument states that the long experience of organizations enables it to minimize costs of processing and maximize its profits. This conclusion is based on the premise that over time, the costs involved in processing reduce as organizations become more efficient. However, there are many assumptions that may not necessarily apply to this argument. Firstly, the argument assumes that the cost of processing reduces as organizations become more efficient. Secondly, the argument links color film processing to food processing. Thirdly, the argument claims that Olympic Foods with its long experience will be able to minimize costs and maximize profits.
The first issue to be addressed is whether efficiency of organizations leads to reduction in costs of processing. Clearly, one could argue that the efficiency of an organization has nothing to do with the reduction in the costs of processing. The cost of processing depends on various factors. Some of the factors include cost of raw materials, cost of labor, transportation and inventory costs and market forces. The only influence that the efficiency of organizations has on cost of processing is to handle crisis and has a greater hold on the market because of brand value. For example, if the cost of raw materials increases the organization can use its experience and its brand name to still remain a dominant player in the market. Therefore, the efficiency of an organization is not the correct parameter to measure the costs of processing.
The argument is flawed as it compares color film processing to food processing. The argument fails to reason out the decrease in costs of color film processing, rather the argument assumes that the only factor that caused a decrease in the cost of processing was time from 50 cents in 1970 to 20 cents in 1984. There are definitely other reasons for the decline in costs, which could be improvement in technology. For example, the use of laser printers from ink jet printers. This considerably reduced the costs. Also, the cost of color film processing could have been reduced because of an increasing demand of prints making it still profitable to reduce costs and because of competition among various color film processors.
Also, food processing cannot be compared to color film processing, as these two processing are totally different in nature. The argument fails to reason why a decrease in cost of film color processing would result in decrease in cost of food processing.
The argument claims that Olympic Foods, with its long experience of 25 years will be able to minimize costs and maximize profits. Again, the argument fails to provide any evidence. It might happen that Olympic Foods faces competition, which could lead to decrease in profits. There might be geographical factors such as climate that determine the production of food in order to process them.
Finally, one must understand that while evaluating the costs of processing, the most influential parameters like labor costs, costs of raw material, competition in the market, demand, supply and market forces must be considered. And after consideration of the above-mentioned parameters, only then a conclusion can be drawn whether Olympic Foods will be able to minimize costs and maximize profits.
For example, in 2009, many food-processing companies were faced with high processing costs due to increase in costs of fruits and vegetables. In such a case, the experience helped organizations to come up with strategic plans and find solutions. But the experience did not help them to minimize their costs.
In conclusion, the argument could have been strengthened by using some statistics to prove that time, experience and efficiency are the only factors and no other, that influence the costs of processing and in this case food processing. Before conclusions are drawn, all the parameters and factors must be weighed and taken into consideration.