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31 Jul 2017, 10:54
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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 claims that its experience of nearly twenty-five years will allow it to cut the costs of processing food. The company mentions that the costs of processing go down over time as a result of organizations learning how to perform tasks more efficiently and uses an example of the film processing industry as ways to support its claim. However, the underlying assumptions and lack of conclusive evidence to support them result in a flawed argument.
First, Olympic Foods implies that the costs of processing will go down for them due to its significant experience of nearly twenty-five years. The underlying assumption here is that time, not innovations and new ways of thinking, will result in processing cost savings. Olympic Foods is mistaking correlation for causation. It is likely that the costs of processing go down over time because the more time a company has, the more likely it is to think of or discover new methods that save the company money. Simply because Olympic Foods is turning twenty-five soon does not imply that cost savings are soon to come.
In addition, Olympic Foods provides an example of the aforementioned trend. It states that color film processing reduced in price from 1970 to 1984. While food processing may apply under the same principle as color film processing, the company assumes that trends in the industry will lead to cost savings at the company level. This is not necessarily the case. For example, if film processing cost reductions were a result of new machines, only the companies that adopted these new technologies would have saved money. Olympic Foods’ again is making the faulty assumption that general trends will apply to it, while that may not be the case.
While the argument as it stands is not sufficient, adding evidence to it could make it more effective. If Olympic Foods stated that it had a new technology or manufacturing method it was planning to try in the coming year as a result of its experience or connections in the industry, then cost-savings would be seen as much more likely. Nevertheless, without evidence directly tying Olympic Foods to cost-cutting measures, the argument as it stands is insufficient.
"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 claims that its experience of nearly twenty-five years will allow it to cut the costs of processing food. The company mentions that the costs of processing go down over time as a result of organizations learning how to perform tasks more efficiently and uses an example of the film processing industry as ways to support its claim. However, the underlying assumptions and lack of conclusive evidence to support them result in a flawed argument.
First, Olympic Foods implies that the costs of processing will go down for them due to its significant experience of nearly twenty-five years. The underlying assumption here is that time, not innovations and new ways of thinking, will result in processing cost savings. Olympic Foods is mistaking correlation for causation. It is likely that the costs of processing go down over time because the more time a company has, the more likely it is to think of or discover new methods that save the company money. Simply because Olympic Foods is turning twenty-five soon does not imply that cost savings are soon to come.
In addition, Olympic Foods provides an example of the aforementioned trend. It states that color film processing reduced in price from 1970 to 1984. While food processing may apply under the same principle as color film processing, the company assumes that trends in the industry will lead to cost savings at the company level. This is not necessarily the case. For example, if film processing cost reductions were a result of new machines, only the companies that adopted these new technologies would have saved money. Olympic Foods’ again is making the faulty assumption that general trends will apply to it, while that may not be the case.
While the argument as it stands is not sufficient, adding evidence to it could make it more effective. If Olympic Foods stated that it had a new technology or manufacturing method it was planning to try in the coming year as a result of its experience or connections in the industry, then cost-savings would be seen as much more likely. Nevertheless, without evidence directly tying Olympic Foods to cost-cutting measures, the argument as it stands is insufficient.
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