The following appeared as part of an annual report sent to stockholders by Olympics Foods, a processor of frozen foods.
“Over time, the costs of processing go down because as organization 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.”
The argument in the annual report is unconvincing because its conclusion depends on several unsubstantiated assumptions of the food processing measures to cut costs and maximize profits. Each of the following areas merit further explanation before it can be given any degree of credibility of its conclusion of Olympics Foods being able to minimize costs and maximize profits.
Firstly, the comparison of the color film processing industry with the food processing industry has not been substantiated with enough data for their similarity of operation. There is no information provided from which we can conclude that both the industries can be compared to an extent that the trends can be compared directly. Additionally, comparison of food processing industry with color film processing industry in the current light of reasoning questions the credibility of the functioning of the Olympic Foods itself. On the other hand, the comparison with its competitor would have given a clearer picture of the market trends for the food processing industry.
Secondly, there is lack of data to validate the assumption that long experiences always help in minimize costs and maximize profits. In fact, there were instances where companies like Lehman Brothers with some 100 odd years of experience have gone bankrupt due to its poor corporate functioning and policies.
Last but not the least, there is no guarantee of an organization learning to be efficient in due course of time. Olympic Foods, being 25 years old, could not foresee its mistakes and then rectify it and thus, coming out with unaccepted reasons for not being able to maximize profits. This projects a clear picture of failure of its functioning.
Due to the many holes in the reasoning in the arguments of the annual report, it is difficult to take the arguments seriously. Unless further evidence surface in each of the areas discussed above, the given premises are insufficient proof that the conclusion drawn is viable.