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18 May 2017, 21:05
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prompt :
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 report states that efficiency increases in organizations over the time, also makes a direct comparison of different industries applying the same principle, This argument contains some flaws in reasoning making the conclusion doubtful.
The major problem of the argument is the assumption that a company is more efficient because of its experience and makes a direct correlation of efficiency with profits, there are some companies that have many years in operation but if they don’t adopt a continuous improvement culture, make positive changes in the organization and invest resources in the effort that efficiency entails they won’t see any change; also an efficient company doesn’t necessarily mean that is profitable, an efficiency indicator is used just to evaluate how a company manage their assets and liabilities, profitability has do to more with the behaviour of the company or organization in the market of their products or services, a bottling company for example can have a high efficient and reliable production line with an output of 24,000 bottles per hour at 80% of its capacity, having said that and considering all operations and handling costs the company determines the market price of each bottle is $1, but the sales dept sell each bottle to $0.75, actually the company is loosing $0.25 per bottle which is not profitable; since the argument fails to mention where olympic foods is in terms of eficiency and profitability and corporate strategy it is difficult to determine how the company will evolve in the upcoming years.
After the analysis Olympic Foods has work to do, since they can’t expect that only experience is necessary to be efficient and profitable , they have been 25 years in operation and still are not efficient, actually the company should adopt a continuous improvement culture and take a better corporate strategy in order to make it more profitable.
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 report states that efficiency increases in organizations over the time, also makes a direct comparison of different industries applying the same principle, This argument contains some flaws in reasoning making the conclusion doubtful.
The major problem of the argument is the assumption that a company is more efficient because of its experience and makes a direct correlation of efficiency with profits, there are some companies that have many years in operation but if they don’t adopt a continuous improvement culture, make positive changes in the organization and invest resources in the effort that efficiency entails they won’t see any change; also an efficient company doesn’t necessarily mean that is profitable, an efficiency indicator is used just to evaluate how a company manage their assets and liabilities, profitability has do to more with the behaviour of the company or organization in the market of their products or services, a bottling company for example can have a high efficient and reliable production line with an output of 24,000 bottles per hour at 80% of its capacity, having said that and considering all operations and handling costs the company determines the market price of each bottle is $1, but the sales dept sell each bottle to $0.75, actually the company is loosing $0.25 per bottle which is not profitable; since the argument fails to mention where olympic foods is in terms of eficiency and profitability and corporate strategy it is difficult to determine how the company will evolve in the upcoming years.
After the analysis Olympic Foods has work to do, since they can’t expect that only experience is necessary to be efficient and profitable , they have been 25 years in operation and still are not efficient, actually the company should adopt a continuous improvement culture and take a better corporate strategy in order to make it more profitable.
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