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 twenty-fifth birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits.”
Answer
The author argues, using facts from the color-film processing industry's downward trend in cost over 24 years, that Olympic Foods will be able to cut costs and thus maximize profits in the future. The author bases his conclusion on the generalization that organizations learn to reduce costs over time and, since Olympic Foods has 25 years experience in the food processing industry, its costs should have declined considerably. There are two serious flaws in the argument.
First, the argument uses a faulty analogy between the color-film processing industry and the food processing industry. Analogies drawn between the two fields are highly suspect because there are many serious differences. While the film processing industry faces a relatively simply processing challenge, food producers must contend with contamination, transportation and farm production (much more serious challenges). Thus, it is likely much more difficult to wring efficiency improvements in the food industry.
Second, the author uses a sweeping generalization. the author's prediction of margin improvements relies on the optimistic assumption that Olympic Foods' 25 years of experience will automatically result in operational efficiencies. The problem with this is that improvements in processes do not occur automatically over time, they require tremendous effort at continuous improvement and they require potential room for improvement. It is possible Olympic Food has limited room for improvement or lacks the managerial will to improve its operations. Thus, there is no guarantee of improved operational efficiency over time.
The author's argument has two seriously flawed assumptions. The author could strengthen his conclusion by providing examples of how the company has learned how to improve its operations over 25 years and implemented those changes.
[此贴子已经被作者于2004-3-19 10:27:37编辑过]
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