GMAT Task 01: The Olympic Foods
by PJWisaksono
Task 01
Date: 31 August 2016
Question:
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.”
Discuss how well reasoned you find this argument. In your discussion be sure to analyze the line of reasoning and the use of evidence in the argument. For example, you may need to consider what questionable assumptions underlie the thinking and what alternative explanations or counterexamples might weaken the conclusion. You can also discussion what sort of evidence would strengthen or refute the argument, what changes in the argument would make it logically sound, and what, if anything, would help you better evaluate its conclusion.
Source: http://www.mba.com/~/media/Files/mba/NEWTheGMAT/AnalysisofanArgument100606.pdf
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My Answer (corrections and/or comments available in the brackets are made by Mr Herry, a teacher of IELC Solo):
An expectation coming from an annual report of Olympic Foods, a frozen food manufacturer, states that a long experience will help its management operate its production more efficiently such as by minimizing costs of processing that leads to making more profits. This is owing to a common assumption that if organizations learn to run its business better and more for a long period of time, it will push the costs of processing to decrease. (include the color film processing example here)
In my opinion, there is not enough evident that guarantees a long experience can make the company run its business as well. Many companies record consecutive decreasing year-on-year revenues and make lost after changing their top managements. This particularly happens in family based companies in which they make heyday during the first generation of the family, but then the predecessors cannot handle the take-over companies as well.Moreover, in every company, minimizing costs is a must. However, it does not mean they can always make profits. A case in point, the company is still at the early years to grow in which they spend the amount of money for in buying capital assets such as machines, lands and buildings, or marketing their products, for example, to advertising on television, the internet, and so on. For an ongoing company, they may experience lost loss for a few years during bad economic and political turmoil occurring on their marketing areas.
The going-down costs also can be as results of some factors. Perhaps, the company just added machines and increased mass productions. Hence, at this moment they can produce more products with lower costs. The development of technology may also influence the condition. It is because robotic machines can take over or minimize the use of human workers. (these paragraphs (paragraph 2, 3 and 4) do not really talk about the report directly)
On the other hand, if we look at the argument, it is not relevant to compare between Olympic Foods and another company that is from a totally different industry. First, in the comparable company (what do you mean?), it seems that there is no consideration of the inflation between the cost of service in 1970 and in 1984. Second, in the color film processing, the company does not think a lot with the expiration date (rephrase this), yet in the food processing, the company should be concerned with the expiration date of their products. Third, in the food processing, a company may face various materials and have to adapt with what customers need at this moment much more quickly than that of in the color film processing. For example, nowadays, people tend to eat organic foods. In fact, the organic foods or alkaline foods may be more expensive than the common foods. (how does this illustrate the argument you proposed in the previous sentence?)
In conclusion, a long experience does not have any correlation with how the organizations can minimize costs of processing and or maximizing profits.
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Sample Answer:
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.”
The author concluded that with long experience of 25 years, Olympic foods will be able to maximize profits and minimize costs because the processing cost has gone down in color film industry. The line of reasoning is that the same approach in film processing industry should be applicable to the other industries. This argument is not sound, however, because it is not necessary that same thing would happen to food industry. It depends upon many other factors.
Firstly, the argument assumed that the color film industry is similar to food industry. One must not forget that an Olympic food is an industry for frozen foods or perishable products. These products require fast transportation and special equipments in order to keep fresh or the entire stock will get junked. These requirements can claim substantial costs and it is very likely that they can never be cut. One the other hand, color film is a consumer product which stays much longer and is not perishable. Therefore, it is possible that the cost-cutting approach is not applicable to the food industry.
Secondly, the author failed to address other factors that are important to a company’s success. It is well known that in the long run maximization of profits occurs due to low cost of production. But it’s not the only factor they consider. Other factors such as demand for the product, selling price, and overall competition in the market should also be taken into consideration. Today, buyers become the king in the market. If other companies’ products are available at lower price with same quality or at similar price with higher quality, then people don’t buy the Olympic’s product. Therefore, if most consumers choose other companies’ products, then the objects of higher profits and lower cost can’t be attained.
Finally, the speaker did not include any information on Olympic management approach. Rather, it just mentioned the long experience of 25 years in food industry. While there is rough correlation between long experience and ability to maximize profit, it is not always the case. If the Olympic fails to accumulate valuable management experience, such as time-consuming strategic alliance, learning from failure, etc, then Olympic long experience will not enable it to minimize costs and thus maximize profits
In sum, the argument is not compelling because it omitted many other factors that must be addressed in order to make proper conclusion. If the author has considered the difference between color film and food industry, selling price, and product quality, the argument would be more convincing.
PJWisaksono 