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13 May 2018, 21:56
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AWA Ques:
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.”
Olympic Foods argues that, “Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient.” It also presents an example of color film processing industry where both processing costs and processing time have come down from 1970 to 1984. The argument is flawed because of three reasons.
First, it overlooks the fact that experience may or may not play a vital role in reducing the time or cost of processing in a food processing industry. If something requires a fermentation time of say 12 hours today, most likely the time taken would have been same 25 years ago also.
Second, it makes a comparison with color film processing industry where less time taken in processing is considered an indicator of efficiency. In food processing, a food item might sell because of its unique taste or flavour rather than fast processing. So, even if some frozen food item may take more time to process but customers have a preference to its taste or flavour, more efficiency might mean ensuring the good flavour rather than reducing time of processing.
Third, Olympic Foods has assumed that the reduction in time and cost of processing by the color film processing industry is only because they learnt how to do it better over the years. In fact, the cost of processing may have gone down due to factors like increased demand which in turn, means bulk processing. Also, time of processing may have gone down because of factors like an upgrade in technology in color film processing.
Olympic Foods has also presented the argument that, “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.” Here, they have assumed that operating (processing) costs are the only costs incurred to the company, whereas, there are so many other costs that play a vital role. For example, cost of raw materials, cost of machine maintenance, cost of technology upgrade, cost of storage, transportation and distribution among others are also considerable costs to a company. In fact, for frozen food items which are perishable, storage and transportation costs could be significant. Also, reducing costs is not the only way to maximise profits. An increase in revenue plays an equally important role in maximising profits. The increase in revenue may again depend on so many factors like market competition, demand for the food items processed by Olympic Foods, awareness about the brand Olympic Foods and customer preference for the food items which the company offers.
So, a lot of factors have been overlooked while making this assertion that 25 years of experience will reduce processing costs and hence, maximise profits.
-Please rate the overall AWA.
-Point out any flawed arguments that I may have given and any grammatical or structure errors.
-Review the words used and tell me if that is fine.
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.”
Olympic Foods argues that, “Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient.” It also presents an example of color film processing industry where both processing costs and processing time have come down from 1970 to 1984. The argument is flawed because of three reasons.
First, it overlooks the fact that experience may or may not play a vital role in reducing the time or cost of processing in a food processing industry. If something requires a fermentation time of say 12 hours today, most likely the time taken would have been same 25 years ago also.
Second, it makes a comparison with color film processing industry where less time taken in processing is considered an indicator of efficiency. In food processing, a food item might sell because of its unique taste or flavour rather than fast processing. So, even if some frozen food item may take more time to process but customers have a preference to its taste or flavour, more efficiency might mean ensuring the good flavour rather than reducing time of processing.
Third, Olympic Foods has assumed that the reduction in time and cost of processing by the color film processing industry is only because they learnt how to do it better over the years. In fact, the cost of processing may have gone down due to factors like increased demand which in turn, means bulk processing. Also, time of processing may have gone down because of factors like an upgrade in technology in color film processing.
Olympic Foods has also presented the argument that, “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.” Here, they have assumed that operating (processing) costs are the only costs incurred to the company, whereas, there are so many other costs that play a vital role. For example, cost of raw materials, cost of machine maintenance, cost of technology upgrade, cost of storage, transportation and distribution among others are also considerable costs to a company. In fact, for frozen food items which are perishable, storage and transportation costs could be significant. Also, reducing costs is not the only way to maximise profits. An increase in revenue plays an equally important role in maximising profits. The increase in revenue may again depend on so many factors like market competition, demand for the food items processed by Olympic Foods, awareness about the brand Olympic Foods and customer preference for the food items which the company offers.
So, a lot of factors have been overlooked while making this assertion that 25 years of experience will reduce processing costs and hence, maximise profits.
-Please rate the overall AWA.
-Point out any flawed arguments that I may have given and any grammatical or structure errors.
-Review the words used and tell me if that is fine.
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