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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.”
In discussion of the annual report, it mentioned that “we can expect that our long experience will enable us to minimize costs and thus maximize profits.” There were two main reasons that lead to the viewpoint in the article.
One reason was technology advancement. The Olympic Foods was first initiated in 1970 according to the annual report. By that time, technology was not as advanced as what it was in 1984. The rapid change in technology has ensured the better and faster services being provided for Olympic Foods.
In addition, technology advancement was associated with production and delivery efficiency improvement which would lead to cost reduction. For example, it might take Olympic foods providers to spend over 2 hours cooking a certain type of health food. In contrast, as technology enhances, food machines could work faster and more efficient to assist people to cook and maintain the quality of food for a longer period in 1970 than in 1984. Thus, a faster food supply chain would be created as technology improved.
The second reason was related to the business strategic enhancement of Olympic Foods providers. As accumulating more experiences in Olympic Foods offerings, providers could learn better about consumer preferences and know what the right things they need to do to satisfy the consumers’ needs. As more consumers are attracted to buy Olympic Foods with reduced prices, providers should be able to maximize their profits.
However, someone one might argue that the reduced cost of processing frozen foods might be good for cost minimization and short-term profit accumulation. On the other hand, consumers would eat fresher and healthier food than frozen foods and would not buy a lot of frozen foods in the long run. Therefore, the Olympic Foods providers should enhance the processing speed of both frozen foods and fresh foods in order to obtain the goal of long-run profit maximization.
In order to implement a solution for the problem of frozen Olympic Foods, providers could hire better cooks to cook good-taste fresh foods and marking majors to create an efficient strategy to attract more customers to buy fresh and health foods in order to maintain long-run profits in Olympic Foods services.
In short, the frozen Olympic Foods might had some problem with maintaining the freshness of foods, their decreased cost of production due to technology enhancement have helped providers to create short-run profits. At the same time, if providers could offer better services and ensure qualities on both frozen and fresh foods in 1984 than in 1970, then providers would generate long-run profits by satisfying a variety of consumers’ preferences.
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