ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)
Journal of Innovations and Sustainability Volume 3, Number 3, 2017
Innovations and Sustainability Academy 2017
Journal of Innovations and Sustainability Volume 3, Number 3, 2017 https://sites.google.com/site/journalinsust/
Editor-in-Chief: Prof. Vesela Radović, Ph.D. Managing Editor: Assoc. Prof. Ekaterina Arabska, Ph.D.
Š Innovations and Sustainability Academy 1, Lotos Str., Plovdiv 4006, Bulgaria
E-mail: insustacademy@gmail.com https://sites.google.com/site/insustacademy/
2017 ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)
ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)
Volume 3 Journal of Innovations and Sustainability
Number 3 2017
Contents
Foreword .............................................................................................. 5
SOCIAL SCIENCES
Economic Efficiency and Investment Implementation in Energy Saving Projects ................................................................................................ 9 Venelin Terziev, Svetoslava Enimaneva & Stefan Filipov Vasil Levski National Military University – Veliko Tarnovo, Bulgaria
Standards and Customer Service: Employees Behavior towards Customers .......................................................................................... 27 Venelin Terziev, Vanya Banabakova & Marin Georgiev Vasil Levski National Military University – Veliko Tarnovo, Bulgaria
Customer's Profitability Analyses and Customer Service Policies ........ 39 Venelin Terziev, Vanya Banabakova & Marin Georgiev Vasil Levski National Military University – Veliko Tarnovo, Bulgaria
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ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)
Volume 3 Journal of Innovations and Sustainability
Number 3 2017
Foreword The papers included in this issue of the Journal of Innovations and Sustainability are oriented towards some important questions concerning economic efficiency, investment implementation, energy saving, and customer service policies. Decision taking and investment implementation are connected to a number of analyses, assessments and evaluations imposing the need of elaboration of a system of criteria and priorities in order to determine the necessary indicators of economic efficiency of a specific investment project with the highest significance. The first paper considers those issues in the light of the energy saving and enery efficiency. Next paper discusses topics on the ensurance of effective customer services and development standards of quality management making a proposal of an algorithm of application of standards related to the employees’ behavior towards customers in some key points – field of application, features and organizational standards of service. The main areas of development of standards regarding customer service are identified, as well as the establishement of customer service policies, the elaboration of relevant metrics and targets and control measures. The significance of the analyses of customer’s profitability is in the focus of the third paper providing some new implications on the measurement of the customer profitability accenting also on the customer service policy in the organization. The presentation puts the special attention to the “cost-effective customer” and to the profits and costs in long term rather than in a specific purchase. Customer differentiation is regarded as one serving to define the strategy and in taking operational decisions related to the service. The key elements of the service policy are determined and proposals are made how to achive the organization’s objectives. All the papers consider some of the aspects of innovations and sustainability opening new topics of future discussions in the field of sustainable production and consumption in terms of the good management of organizations and investments.
Ekaterina Arabska Innovations and Sustainability Academy
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Journal of Innovations and Sustainability
SOCIAL SCIENCES
Volume 3, Number 3, 2017
ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)
Volume 3 Journal of Innovations and Sustainability
Number 3 2017
Economic Efficiency and Investment Implementation in Energy Saving Projects Venelin Terziev1, Svetoslava Enimaneva & Stefan Filipov Vasil Levski National Military University – Veliko Tarnovo, Bulgaria Abstract Investment in building thermoinsulation is a subject to appraisal for efficiency from the position of discounted cash flows taken specifically by energy saving. The appraisal of investment as optimal is attended by achieving the shortest term for investment implementation, the lowest investment outlays, the maximum total net value of energy savings, the shortest investment payback period. The complex application of the dynamic methods for appraising economic efficiency of an investment – net present value, internal rate of return, profitability index and discounted payback period, involves drawing of particular values which comparison definitely will show if this kind of investment is practically “attractive”. However, the question for significance weight of each of these indicators above in decision making for implementation a particular real investment still remains unsolved. This requires working out a system of criteria, priorities that can determine which of the indicators for economic efficiency of specific investment project will have the highest significance. Key words: economic efficiency, renovation construction process, investment choice.
INTRODUCTION Mr. Kalin Rogachev, Vice-minister at Ministry of Regional Development and Public Works, at 7th April, 2009 opens the round-table meeting “The pros and cons on partial thermoinsulating” with the words: “Over 4 milliard leva (BGN) will be necessary for
1
Corresponding author: Prof. Dipl. Eng. Venelin Terziev, D.Sc. (Ec.), D.Sc. (National security), Ph.D.
Corresponding Member of the Russian Academy of Natural History, Moscow, Russia E-mail: terziev@skmat.com
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
renovating the entire building fund in the country”. At the same meeting arch. Geliazko Ivanov, member of the Managing Committee of the Chamber of architects in Bulgaria, says: “In Bulgaria only the large-panel flats count 670 000. At the present speed of implementing projects for buildings thermoinsulation, only for these large-panel flats we will need over than 600 years” (Korchakova, 2009). The integration of Bulgaria to the European Union forces the fulfillment of the directives for energy efficiency increase to be done at a faster pace than reported. That imposes the processes on buildings investigation and provision of the resources needed for their transformation to the requirements for energy consumption levels to be placed at a more dynamical base. The responsibility for these processes is clearly divided: Upon the governmental, district and municipal buildings it is taken by the government and the state budget; Upon the buildings - private property of single economic subjects (companies and individuals) – it is on their own, their financial resources and their conviction on the indispensable character of the investment in energy efficiency increase of their own buildings. That causes renovation of detached objects (flats) in buildings instead of entire renovation. The result of these actions is inefficient for the building as a whole by reason of falling to get optimal energy savings. Therefore, the effect on the energy consumption in the building is very small. Limited financial resources of the single economic subjects and the lack of clear orientation and knowledge of the energy savings in result of thermoinsulation, the value of necessary investment outlays for thermoinsulation and terms for their payback, demand to be collaborated and popularized a model that will ensure attainment of energy savings optimization with optimal value of investment in thermoinsulation.
ANALYTICAL MODEL OF THE INITIAL INVESTMENT OUTLAYS FOR THERMOINSULATION AND THE CASH FLOWS OF ENERGY SAVINGS IN RESULT OF THERMOINSULATION The model is defined to have two basic elements: Investment outlays value. The first element depends on the material sort, its thickness, the price of the material according to its sort and thickness, as well as value of other outlays made for insulation implementation. Upon external implementation the first element will be:
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ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)
I out Qij .Pij 1 pm L 1 pl Eout 1 p E 1 p pr
(1)
I out , BGN – sum of the investment outlays upon external implementation of the
thermoinsulation, Qij , m2 – the necessary quantity (the so-called practical standard) of thermo-
insulating material with relevant thickness for 1m2 area, Pij , BGN – price of the thermoinsulating material with relevant thickness for 1m2
area, pm , % - rate for additional outlays for materials, usually pm 10% (delivery-warehouse
outlays), L , BGN – value of the manual labor quota for implementing 1m2 thermoinsulation
(quota = hours of manual labour wanted for covering 1 m2 area with thermoinsulating material х tariff for hour manual labour), pl , % - rate for additional outlays for manual labour, usually pl 80 100% (insurance,
etc.), Eout , BGN – value of the mechanization (in the case it is the value of making
scaffolding fitting), pE , % - rate for additional outlays for mechanization (transport, scaffolding, etc.),
usually p E 20 40% , p pr , % - profit rate.
Upon internal implementation the first section will be:
I in Qij .Pij 1 pm L 1 pl
1 p pr
(2)
I in , BGN - sum of the investment outlays upon internal implementation of the
thermoinsulation. Value of the energy savings. The second element depends on the specific climatic region, the hours of constancy of the particular atmospheric temperatures during the heating period, the quantity of saved energy at detached temperature differences and at different specific ratios of thermal transition of the insulating materials, the price per 1kWh according to the energy resource (electricity, natural gas, etc.). The value of the energy savings taken in result of thermoinsulation are actually the net cash flows that will take part in calculating the indicators of economic efficiency of the investment, viz. NPV, IRR and PI. The comparison of the different values of the
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
indicators taking into consideration their advantages and disadvantages (Mateev, 1998; Prodanov, 1999; Aleksandrova, 2001; Brusarski, 2003; Enimaneva, 2004) is to help in determining a priority indicator for investment decision making for thermoinsulation with specific insulating material. t0 11 ...
(3)
Fmn t0 i1 ... t0 n1
0 0 ... 0 .... 0 11 12 1j 1m ....................................
(4)
Gmn 0 0 ... 0 ...... 0 im i1 i 2 ij ....................................
0 0 ... 0 ... 0 nm nj n1 n 2
(5)
D ti .Gmn Fmn .Gmn
ij
t t . ti t0 . 0 n i 0i 0i i i .S .103 CFе ij 1 R Rren
(6)
(Standards for design of heating, ventilation and air-conditioning systems, 2001), n CFei NPV I0 i 1 (1 r )i
(7)
CFe n i 0 I0 i 1 (1 IRR )i
(8)
PI
n NCFei i 1 (1 r )i I0
(9)
(Prodanov, 1999), t0 , °С – values of the atmospheric air temperatures during the heating period, 11
0 , h – hours of constancy of the values of atmospheric air temperatures during the ij
heating period at different months and specific climatic regions,
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ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)
Fmn - determinant of distribution of the values of atmospheric air temperatures
during the heating period, Gmn - determinant of the hours of constancy of the values of atmospheric air
temperatures during the heating period, ti , °С – temperature held up in the building,
CFе , BGN – attained (expected) value of energy savings during the heating period,
R , m2.К/W – the resistance of thermal transfer of the outer wall before
thermoinsulation, Rren ins , m2.К/W – the resistance of thermal transfer of the wall after ij ins
thermoinsulation with specific insulating material with relevant thickness, ins , m – the thickness at which the insulating material is used for thermoinsulation, ins , W/m.K – the specific ratio of thermal transfer of the relevant insulating material, Sij , BGN/kWh – price of the energy used for heating, that will take part in
calculations of the energy savings value, I 0 , BGN – value of the investment outlays according to the way of thermoinsulation
implementing (outer/ inner), NPV , BGN – net present value of the investment, r , % - annual interest rate of the credit for thermoinsulation, n , years – credit term in years,
IRR , % - internal rate of return of the investment, PI - profitability index of the investment.
RESULTS The value of the investment outlays upon internal implementation of the insulation material varies from 19.74 BGN/m2 to 46.97 BGN/m2 according to the sort of the insulating material (the most often used sorts of insulating materials from the single economic
subjects are
chosen)
and its
price
(Справочник за цените
в
строителството, 2009) at thicknesses 0.01m and 0.05m. The last column of Table 2 shows the investment outlays value per 1m2 that single economic subject should do if participating in procedure for loan through Residential Energy Efficiency Credit (REECL) Facility (Available from: http://www.reecl.org/) with the partnership of
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
Raiffeisen (Bulgaria) Bank, ProCredit Bank (Bulgaria), United Bulgarian Bank and DSK Bank.
Table 1. Value of the initial investment outlays upon internal thermoinsulation according to material sorts and their prices at relevant thicknesses Material sort
Thickness (m)
Investment Outlays Value
80% Io
(BGN/ m2)
EPS
0,01
19,74
15,79
EPS (styrofoam)
0,05
22,83
18,26
XPS
0,01
21,42
17,14
XPS (fiber)
0,05
31,22
24,98
Stone wool
0,01
24,57
19,66
Stone wool
0,05
46,97
37,58
Table 2 and Table 3 below present the matrixes of distribution of the atmospheric air temperatures t0 (matrix Fmn ) and the hours of their constancy 0 (matrix Gmn ) ij ij for the three specific climatic regions in Bulgaria (Climate Guide of Bulgaria, Vol. 3, 1983) – Sandanski, Chirpan and Knezha. The atmospheric air temperature is given in interval of 2°С. The heating period lasts from October till April. The differences in the hours of constancy of the low temperatures at different months and regions are determinative for the quantity of expected energy saving.
Table 2. Distribution of the hours of constancy of the low atmospheric air temperatures at different months (during the heating period) Sandanski Fmxn
Gmxn X
XI
XII
I
II
III
IV
t atm.
hours
hours
hours
hours
hours
hours
hours
-15
0,0
0,0
0,0
3,9
0,0
0,0
0,0
-13
0,0
0,0
0,0
2,6
0,0
0,0
0,0
-11
0,0
0,0
0,0
19,4
0,4
0,0
0,0
-9
0,0
0,0
0,0
19,0
0,5
0,0
0,0
-7
0,0
0,0
10,8
33,5
7,2
0,0
0,0
-5
0,0
0,0
12,9
55,0
21,3
0,0
0,0
-3
0,0
0,0
24,0
61,2
32,1
0,0
0,0
-1
0,5
25,8
56,8
83,2
72,4
33,6
0,0
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ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line) Sandanski Fmxn
Gmxn X
XI
XII
I
II
III
IV
t atm.
hours
hours
hours
hours
hours
hours
hours
1
0,2
31,3
85,4
109,6
92,1
30,2
0,0
3
2,2
52,6
123,3
118,0
89,6
64,4
1,2
5
10,4
77,1
124,3
100,5
94,3
108,0
8,8
7
21,4
154,1
108,2
61,1
86,8
129,4
25,6
9
77,7
134,0
87,6
38,1
74,5
126,9
55,3
11
95,8
124,3
54,9
26,2
50,4
92,2
77,2
13
116,1
73,0
32,5
7,0
29,6
65,4
116,1
15
132,4
33,6
17,6
5,3
14,5
43,8
118,6
17
93,3
11,6
3,7
0,4
15,3
28,7
101,9
Chirpan Fmxn
Gmxn X
XI
XII
I
II
III
IV
t atm.
hours
hours
hours
hours
hours
hours
hours
-17
0,0
0,0
0,0
2,6
0,9
0,0
0,0
-15
0,0
0,0
0,0
4,8
0,1
0,0
0,0
-13
0,0
0,0
0,8
5,8
19,4
0,0
0,0
-11
0,0
0,0
2,9
27,3
12,6
1,4
0,0
-9
0,0
0,0
8,1
25,9
31,1
1,2
0,0
-7
0,0
2,4
18,5
49,8
55,5
4,2
0,0
-5
0,1
5,2
25,1
59,2
73,1
8,3
0,0
-3
0,8
12,5
35,4
71,2
85,1
26,1
0,0
-1
7,3
24,5
58,8
105,4
115,7
51,4
1,2
1
14,1
34,2
108,5
150,1
80,0
82,2
9,8
3
23,5
51,2
113,4
111,7
53,2
104,9
26,1
5
33,7
75,4
124,5
69,1
51,6
117,7
61,3
7
52,9
95,6
103,2
34,5
38,2
100,3
90,1
9
82,3
106,7
54,7
15,8
22,6
79,7
106,2
11
102,4
129,5
37,6
6,4
19,0
55,7
100,8
13
111,0
91,0
25,1
4,4
8,6
37,1
92,0
15
98,7
46,9
27,1
0,0
4,9
31,3
71,0
17
73,6
26,5
0,3
0,0
0,4
21,3
55,1
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
Knezha Fmxn
Gmxn X
XI
XII
I
II
III
IV
t atm.
hours
hours
hours
hours
hours
hours
hours
-21
0,0
0,0
0,4
7,3
0,0
0,0
0,0
-19
0,0
0,0
1,0
10,0
3,8
0,0
0,0
-17
0,0
0,0
2,5
12,7
3,8
0,0
0,0
-15
0,0
0,0
3,1
13,7
5,6
0,0
0,0
-13
0,0
0,0
8,9
30,9
9,0
0,2
0,0
-11
0,0
0,0
12,7
44,7
16,7
6,5
0,0
-9
0,0
0,0
35,1
49,0
25,1
2,0
0,0
-7
0,0
3,9
45,6
56,7
33,0
9,7
0,0
-5
0,0
7,4
68,4
84,9
54,9
20,9
0,0
-3
15,3
14,3
97,7
99,3
87,9
47,7
0,0
-1
18,3
31,1
124,8
122,6
128,8
80,1
0,0
1
30,0
64,2
132,8
110,4
117,2
107,6
1,4
3
57,4
83,6
93,8
63,3
58,9
117,8
9,7
5
73,3
100,5
53,3
24,4
49,0
94,4
44,1
7
91,9
104,9
23,7
9,1
36,7
72,6
63,4
9
91,3
119,9
16,0
3,1
15,3
60,3
75,4
11
95,4
70,7
21,1
1,2
15,0
43,9
97,3
13
87,3
46,7
1,6
0,4
4,6
28,5
90,5
15
63,4
27,1
1,3
0,3
5,5
18,3
74,8
17
45,9
30,3
0,2
0,0
1,2
15,7
55,0
Data from Table 3 allow to calculate the hour-degrees and to determine their distribution at different months and climatic regions of the country during the heating period. It is accepted that the minimal permissible temperature inside the building is t=20°C. The calculations of energy savings values correspond to resistance of thermal transfer of the panel wall before thermoinsulation R=1.43 m2.K/W, thicknesses of the insulating material 0.05m and 0.01m, and ratios of thermal transfer for EPS λ = 0.037 W/m.K., for ХPS λ = 0.026 W/m.K. and for mineral wadding λ = 0.035 W/m.K.
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Table 3. Distribution of the hour-degrees for the three specific climatic regions in the country at different months during the heating period (HP) Total hourRegion
degrees for
X
XI
XII
I
II
III
IV
HP Sandanski
60110,1
3957,4
8497,0
11133,0
13930,8
10427,2
8665,0
3499,7
Chirpan
70958,4
5353,0
8181,0
11977,8
15226,6
13883,0
10351,4
5985,6
Knezha
79874,5
7504,9
9293,0
15380,4
17684,2
13824,2
11633,0
4554,8
Table 4. Values and distribution of the energy savings at different months and climatic regions according to the insulating material sort with 0.05m thickness, the energy resource and its price Price
CFsе
CFsе
CFsе
CFsе
CFsе
CFsе
CFsе
ACFse
BGN/kWh
BGN
BGN
BGN
BGN
BGN
BGN
BGN
(BGN)*
X
XI
XII
I
II
III
IV
Sandanski EPS, 0.05 m electricity
0,154
0,21
0,44
0,58
0,73
0,55
0,45
0,18
3,14
natural gas
0,095
0,13
0,27
0,36
0,45
0,34
0,28
0,11
1,94
electricity
0,154
0,24
0,52
0,69
0,86
0,64
0,54
0,22
3,71
natural gas
0,095
0,15
0,32
0,42
0,53
0,40
0,33
0,13
2,29
XPS, 0.05 m
Mineral wadding, 0.05 m electricity
0,154
0,21
0,46
0,60
0,75
0,56
0,47
0,19
3,24
natural gas
0,095
0,13
0,28
0,37
0,46
0,35
0,29
0,12
2,00
X
XI
XII
I
II
III
IV
Chirpan EPS, 0.05 m electricity
0,154
0,27
0,41
0,55
0,54
0,45
0,52
0,30
3,04
natural gas
0,095
0,17
0,26
0,34
0,33
0,28
0,32
0,19
1,88
electricity
0,154
0,32
0,49
0,65
0,64
0,53
0,61
0,36
3,59
natural gas
0,095
0,20
0,30
0,40
0,39
0,33
0,38
0,22
2,22
XPS, 0.05 m
Mineral wadding, 0.05 m electricity
0,154
0,28
0,43
0,57
0,56
0,46
0,53
0,31
3,13
natural gas
0,095
0,17
0,26
0,35
0,34
0,29
0,33
0,19
1,93
X
XI
XII
I
II
III
IV
Knezha EPS, 0.05 m electricity
0,154
0,34
0,46
0,70
0,64
0,61
0,58
0,18
3,50
natural gas
0,095
0,21
0,28
0,43
0,39
0,38
0,36
0,11
2,16
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
XPS, 0.05 m electricity
0,154
0,40
0,54
0,83
0,75
0,72
0,68
0,21
4,13
natural gas
0,095
0,25
0,33
0,51
0,47
0,45
0,42
0,13
2,55
Mineral wadding, 0.05 m electricity
0,154
0,35
0,47
0,72
0,66
0,63
0,59
0,18
3,60
natural gas
0,095
0,21
0,29
0,44
0,41
0,39
0,37
0,11
2,22
*ACFse (BGN) – annual net cash flow of energy saving taken during the entire heating period 01.10.Х – 30.04.Х+1
Table 5. Values and distribution of the energy savings at different months and climatic regions according to the insulating material sort with 0.01m thickness, the energy resource and its price Price
CFsе
CFsе
CFsе
CFsе
CFsе
CFsе
CFsе
ACFse
BGN/kWh
BGN
BGN
BGN
BGN
BGN
BGN
BGN
(BGN)
X
XI
XII
I
II
III
IV
Sandanski EPS, 0.01 m electricity
0,154
0,07
0,15
0,19
0,24
0,18
0,15
0,06
1,03
natural gas
0,095
0,04
0,09
0,12
0,15
0,11
0,09
0,04
0,63
electricity
0,154
0,09
0,19
0,25
0,32
0,24
0,20
0,08
1,37
natural gas
0,095
0,06
0,12
0,16
0,20
0,15
0,12
0,05
0,85
XPS, 0.01 m
Mineral wadding, 0.01 m electricity
0,154
0,07
0,15
0,20
0,25
0,19
0,16
0,06
1,08
natural gas
0,095
0,04
0,09
0,12
0,15
0,12
0,10
0,04
0,66
X
XI
XII
I
II
III
IV
Chirpan EPS, 0.01 m electricity
0,154
0,09
0,14
0,18
0,18
0,15
0,17
0,10
1,00
natural gas
0,095
0,05
0,08
0,11
0,11
0,09
0,10
0,06
0,61
electricity
0,154
0,12
0,18
0,24
0,24
0,20
0,23
0,13
1,33
natural gas
0,095
0,07
0,11
0,15
0,15
0,12
0,14
0,08
0,82
XPS, 0.01 m
Mineral wadding, 0.01 m electricity
0,154
0,09
0,14
0,19
0,19
0,15
0,18
0,10
1,04
natural gas
0,095
0,06
0,09
0,12
0,11
0,09
0,11
0,06
0,64
X
XI
XII
I
II
III
IV
Knedga EPS, 0.01 m electricity
0,154
0,11
0,15
0,23
0,21
0,20
0,19
0,06
1,14
natural gas
0,095
0,07
0,09
0,14
0,13
0,12
0,12
0,04
0,71
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0,154
0,15
0,20
0,31
0,28
0,27
0,25
0,08
1,53
natural gas
0,095
0,09
0,12
0,19
0,17
0,17
0,16
0,05
0,94
Mineral wadding, 0.01 m electricity
0,154
0,12
0,16
0,24
0,22
0,21
0,20
0,06
1,20
natural gas
0,095
0,07
0,10
0,15
0,14
0,13
0,12
0,04
0,74
The sum of the energy savings attained at different months during the heating period is the annual net cash flow that will be used for calculating the indicators for economic efficiency of the investment in thermoinsulation. Table 6 shows the opportunities that the banks – partners in REECL Facility give to the single economic subjects for ensuring the thermoinsulation financing.
Table 6. Terms of Energy Efficiency Credits of the banks – partners in REECL program Banks – partners in REECL Facility
Credit term Annual interest rate for credit in BGN
UBB
Raiffeisenbank
DSK
ProCredit
Up to
Up to
Up to
Up to
5 years
7 years*
10 years*
5 years
12,75%
13,95% - 15,95%
13,00%
12,50%
9,95% - 11,95%
10,75%
---
40 BGN/ € 20
25 BGN/ € 12,75
30 BGN.
---
2,45%
1,50%
1,50%
---
---
---
100 BGN
Annual interest rate for credit in EUR Charge for credit scrutiny One-time charge for credit management (percent on the credit size) Charge for credit financial security appraisal
Guarantee
Other terms
---
wanted;
Salary transfer
Salary transfer
to account
to account
at the bank
Guarantee wanted
at the bank Charges service
for
account
√
√
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
The choice of financing demands to compare the opportunities not only in reference to the annual interest rate, but also in reference to the additional outlays rising for 1m2 as a result of charges for credit scrutiny, management and financial security appraisal. The calculations are made at investment values 15.79 BGN/m2 and 37.58 BGN/m2. For “Energy Efficiency” credits of Raiffeisenbank, DSK Bank and ProCredit Bank, the outlays rising for the entire credit term is respectively 0.79 BGN/m2, 0.49 BGN/m2 and 1.54 BGN/m2. The investment outlays rising for 1 m2 only because of the higher annual interest rate (AIR) of UBB in comparison with the AIR of ProCredit with 0.25 points for credit term of 5 years (equal for both banks) is 0.20 BGN/m2 at I0 (m2) = 15.79 BGN/m2 and 0.47 BGN/m2 at I0(m2) = 37.58 BGN/m2. That makes the UBB credit more attractive. The comparison of financing variants in BGN between UBB, Raiffeisenbank and DSK is useless. A comparison ought to be done between the credit in BGN of UBB at AIR=12,75% and the credits in EUR at AIR=9,95% of Raiffeisenbank and at AIR=10,75% of DSK Bank taking into consideration the outlays rising as a result of charges for credit scrutiny, management and financial security appraisal. At I0(m2)= 15.79BGN/m2 and I0(m2)=37.58 BGN/m2 the UBB credit raises the investment outlays respectively with 1.99 BGN/m2 for the entire term of 5 years and 5.39 BGN/m2 for the entire term of 5 years compared to the DSK credit in EUR. At I0(m2)=15.79 BGN/m2 and I0(m2)=37.58 BGN/m2 the UBB credit raises the investment outlays respectively with 2.62 BGN/m2 for the entire term of 5 years and 7.32 BGN/m2 for the entire term of 5 years compared to the Raiffeisen credit in EUR. The comparative analysis presumes the choice of credit in EUR not taking into consideration the eventual losses of exchange operations. The calculation of the indicators for economic efficiency of the thermoinsulation investment for credit term of 7 years and AIR=9.95% for credit in EUR, is expected to ascertain if the credit term is enough to payback the investment by the annual net cash flows taken specifically by energy savings. Table 7 and Table 8 present the values of economic efficiency indicators calculated at insulating material thickness 0.05м, at the values of energy savings for the relevant climatic region of the country using electricity for heating, at the relevant credit term of the financing institution and taking into consideration the both variants of reading the net cash flows of energy savings: I variant – the cash flows are taken for the fiscal year, i.e. CFx CFOct x CFDecx for year Х,
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II variant – the cash flows are taken for the entire heating period, i.e. for a year it is taken the time from 01.10.Х г. to 31.08.Х+1 г. The data at Table 7 and Table 8 show clearly that for term of 7 years and AIR=9.95% of Raiffeisenbank the discounted cash flows of energy savings are not enough to payback the investment that initiated them. That presses the single economic subject to limit the consumption of its income in order to payback the credit in time and to avoid eventual penalty interest. The term of 10 years which DSK Bank gives at AIR=10.75% allows during the sinking period the investment in thermoinsulation to be paid entirely by initiated by its own net cash flows of energy saving without pressing the single economic subject to engage its earnings. The results do not confirm the acceptability of Raiffeisen credit because the single economic subject is obliged, at least partially, to engage its earnings from eventual other investments in paying back the credit in time. The problem on priority of a particular indicator for economic efficiency in making investment decision for thermoinsulation still remains unsolved.
Table 7. Values and distribution of the indicators for economic efficiency appraisal of the investment using variant I for reading the net cash flows of energy saving (i.e. for a fiscal year) Region
Indicator
EPS, 0.05m
Sandanski
NPV (EUR)
-0,67
-2,52
-10,26
DSK Bank
IRR (%)
9,16
6,16
-3,50
PI
0,929
0,802
0,466
NPV (EUR)
-2,40 BGN
-4,57 BGN
-12,05 BGN
IRR (%)
2,24%
-1,20%
-12,37%
PI
0,743
0,642
0,373
NPV (EUR)
-0,92 BGN
-2,81 BGN
-10,54 BGN
IRR (%)
8,46%
5,60%
-4,03%
10 years
PI
0,901
0,780
0,451
Chirpan
NPV (EUR)
-2,60
-4,81
-12,27
IRR (%)
1,51
-1,89
-12,98
7 years
PI
0,721
0,623
0,361
Knezha
NPV (EUR)
0,41
-1,29
-9,21
IRR (%)
11,72
8,46
-1,73
10 years Sandanski Raiffeisenbank 7 years Chirpan DSK Bank
Raiffeisenbank
DSK Bank
XPS, 0.05m Mineral wadding, 0.05m
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
10 years
PI
1,044
0,899
0,521
Knezha
NPV (EUR)
-1,52
-3,57
-11,19
IRR (%)
5,18
1,45
-10,31
PI
0,837
0,720
0,417
Raiffeisenbank 7 years
Table 8. Values and distribution of the indicators for economic efficiency appraisal of the investment using variant II for reading the net cash flows of energy saving (i.e. for the entire heating period) Mineral
Region
Indicator
EPS, 0.05m
XPS, 0.05m
Sandanski
NPV (EUR)
0,22
-1,48
-9,35
DSK Bank
IRR (%)
11,30
7,93
-2,61
PI
1,023
0,884
0,513
NPV (EUR)
-1,51
-3,52
-11,13
IRR (%)
4,86
0,99
-11,23
PI
0,838
0,724
0,421
NPV (EUR)
-0,09
-1,82
-9,69
IRR (%)
10,46
7,26
-4,03
10 years
PI
0,990
0,858
0,496
Chirpan
NPV (EUR)
-1,76
-3,79
-11,38
IRR (%)
3,97
0,22
-11,85
7 years
PI
0,812
0,703
0,408
Knedga
NPV (EUR)
1,34
-0,20
-8,26
IRR (%)
11,72
8,46
-1,73
PI
1,144
0,984
0,570
10 years Sandanski Raiffeisenbank 7 years Chirpan DSK Bank
Raiffeisenbank
DSK Bank 10 years Knedga Raiffeisenbank 7 years
wadding, 0.05м
NPV (EUR)
-0,59
-2,47
-10,24
IRR (%)
8,02
3,80
-9,09
PI
0,937
0,806
0,467
It should be mentioned that mutually exclusive investment projects are subject to appraisal. It is known that the “internal rate of return” disadvantages show themselves through analysis of projects with identical purposes. An argument is the absolute equality of the IRR values (in both variants - I and II) for the region of Knedga using DSK credit although the different way of defining the net cash flows of energy savings. There are substantial differences between NPV values for the same region and the same insulating materials in both variants which proportion is
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3.27:6.45:1.12. An analogous example are the same values of IRR for the region of Chirpan (insulating with EPS) and the region of Knedga (insulating with XPS), but the NPV values related to them differ 1.4 times. In case of choice between project for thermoinsulation of administrative building in the region of Chirpan and the same project for the region of Knedga, the internal rate of return method does not answer the question which of these two projects has a bigger contribution to the public wellbeing. Net present value should include all the cash flows of an investment for its efficient life. From this point of view the calculated NPV values are comparatively incorrect, because the efficient life of the thermoinsulation investment depends on the expiration date of the thermoinsulating material (usually over than 10 years), the way of laying the insulation, its eventual maintenance in the course of time and other factors. In that examination NPV is bound to the term of credit for investment implementation in order to help single economic subjects in their choice of optimal financing of a project for energy efficiency increase (through thermoinsulation of outer walls). The profitability index excels as an explicit indicator for economic efficiency appraisal of investment in thermoinsulation in view of the fact that every increase in its values is invariably connected to increase in NPV values for the relevant project. The PI values calculated with the net cash flows (initiated during the term of credit for insulation implementing) which are more than 1 guarantee the entire payback of the investment in that term. The purpose of investment in thermoinsulation is exactly the same – to reduce the thermal energy loss through outer walls insulation in order to reduce the energy consumption for heating and improving the comfort inside the building, and the investment outlays to be entirely paid back by the net cash flows (energy savings) initiated by that investment. Furthermore, PI shows the value that every unit of investment earns taking into consideration the time value of money. The higher value of PI unconditionally reflects the higher value of NPV for the same project. It is clear (Table 8) that among all the loan products for financing projects on energy efficiency increase trough thermoinsulation of the outer walls, the only economic efficient credit is the one suggested in euro by DSK for the term of 10 years at APR=10.75% and should be used for implementing insulation with EPS at 0.05m thickness for the regions of Knezha and Sandanski.
CONCLUSION
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
1. The analytical models of the initial investment outlays for thermoinsulation and the net cash flows initiated by energy savings allow appraising the economic efficiency of the investment in thermoinsulation taking into consideration the characteristic features of the specific climatic regions in Bulgaria, the insulation material sort, its thickness and price, the price of energy resource used for heating, as well as the terms of different loans. 2. The net cash flows taken by energy savings as a result of thermoinsulation also allow appraising the economic efficiency of every credit product designed for financing energy efficiency increase. The examination results are to be used for collaboration of credit product that should have greater utility to the single economic subjects in comparison with the currently suggested. Efforts are to be exert for designing a credit model which will allow the cash flows attained by energy savings to be used for discount from the interest rate of the credit for energy efficiency. 3. The variation of the values of economic efficiency indicators accordingly to the specific climatic regions, the insulating material sort, thickness and price, taking into consideration the price of energy resource used for heating and the loan terms, allows to point out the priority of “Profitability Index” indicator in making investment decision for thermoinsulation.
REFERENCES Aleksandrova, M. (2001). Optimizatsiya na investitsionniya izbor /Optimization of investment choice/. Trakiya, Sofiya, 104-142. Brusarski, R. (2003). Analiz „razhodi – polzi” /Cost-Benefit Analysis/. Universitetsko izdatelstvo „Stopanstvo”, Sofiya, 45-53. Enimaneva, S. (2004). Modelirane i izsledvane na diskonta pri saniraneto na sgradi /Modeling and investigation of discounts for the renovation of buildings/. Ikonomika i upravlenie na selskoto stopanstvo, 5, 2004, 51-56. Klimatichen spravochnik na NR Balgariya /Climate Guide of Bulgaria/. (1983). Izdatelstvo „Nauka i izkustvo”, Sofiya, tom 3. Korchakova, M. (2009). Energiynata efektivnost – tema s prodalzhenie /Energy efficiency - theme with continuation/. Stroitel, April 10, 2009. Mateev, M. (1998). Osnovi na investitsionniya menidzhmant /Fundamentals of investment management/. Izdatelstvo „Abagar”, Veliko Tarnovo, 44-70.
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Normi za proektirane na otoplitelni, ventilatsionni i klimatichni instalatsii /Standards for design of heating, ventilation and air-conditioning systems/. (2001). AVS Tehnika, Sofiya. Prodanov, St. (1999). Kapitalovo byudzhetirane /Capital budgeting/. Izdatelstvo „Abagar”, Veliko Tarnovo, 60-83. Residential
Energy
Efficiency
Credit
(REECL)
Facility
(Available
from:
http://www.reecl.org/). Spravochnik za tsenite v stroitelstvoto /Construction Prices Guide/. (2009). „Stroyekspert – SEK”, Sofiya, April, 1, 2009.
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Volume 3 Journal of Innovations and Sustainability
Number 3 2017
Standards and Customer Service: Employees Behavior towards Customers Venelin Terziev1, Vanya Banabakova & Marin Georgiev Vasil Levski National Military University – Veliko Tarnovo, Bulgaria Abstract Ensuring effective customer service requires targeted efforts in a number of areas, one of which is to develop service standards for each market segment. The development and implementation of standards requires the organization to accurately determine customer service types, the cost of providing alternative services, and measures for measuring and controlling the services provided. At the core of the developed and implemented standards is the development and establishment of the customer service policy, which should start with a consumer demand analysis. The definition of customer service level should allow for quantitative measurement because the vague and quantifiable policy does not provide opportunities for evaluation and control of the activities and expenses of customer service. When developing service standards, it is appropriate to apply an algorithm that focuses primarily on standards related to employee behavior towards customers. This paper explores the need and capability to develop customer service standards and provides an algorithm for developing standards for employee behavior toward customers. Key words: customer service, standards, custom requirements.
INTRODUCTION Differentiating customer service is achieved by adopting different standards according to the following criteria: availability of assortment varieties and quantities in percentage of orders placed; actually delivered quantities and assortment varieties 1
Corresponding author: Prof. Dipl. Eng. Venelin Terziev, D.Sc. (Ec.), D.Sc. (National security), Ph.D.
Corresponding Member of the Russian Academy of Natural History, Moscow, Russia E-mail: terziev@skmat.com
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
in percent of the ordered ones; time (cycle) to execute orders in hours or days, and more. The development of service standards uses the results of its analyses and assessments. Standards relating to customer service should be developed in the following areas: responsibilities of management; quality control system; supplier's obligations; design management; document management; purchase quality; product identification; management of the processes of providing services; customer service quality assessment; management of control, measuring and implementation equipment; corrective actions applied in the case of established discrepancies in the provided services; loading, unloading, storing, packaging, delivery and storage of the product; customer interaction; control over data related to service quality; internal audits related to service quality; personnel training; statistical methods. Ensuring effective customer service requires targeted efforts in a number of areas, one of which is to develop service standards for each market segment (Banabakova, 2013, p. 20). Customer serving standards are defined parameters that have a quantitative expression. They are valid for a longer period of time, they are pre-bid and refer to all customers in a given category (if the organization has adopted a system for categorizing their customers). They facilitate the execution of orders and related procedures. Standards serve to plan the necessary conditions, operations and procedures, as well as to conclude long-term contracts with permanent clients for their service. According to Naydenov, service standards include a description of the customer's desired service, the operations that staff should perform and the way they are performed. They should also contain criteria for assessing the quality of work of the staff. The evaluation is carried out by comparing the requirements of the standard with the actual results (Naydenov,1999, p. 105). The purpose of this study is to investigate the need and capability to develop customer service standards and to propose an algorithm for developing standards related to employee behavior towards customers.
DEVELOPING CUSTOMER SERVICE STANDARDS Differentiating customer service is achieved by adopting different standards according to the following criteria (Vasileva, 2002, p. 299):  availability of assortment varieties and quantities in percentage from orders placed;  quantities actually delivered and assortment varieties in percentage to the ordered ones;
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time (cycle) to execute orders in hours or days, and more. The development of service standards uses the results of its analyzes and assessments. Service standardization is an activity of unifying plans, processes, planning system, data exchange system, document turnover, cargo units, commercial and transport packaging, etc. Good practices are regulated in standards (ISO international standards). Standards relating to customer service should be developed in the following areas: responsibilities of management; quality control system; supplier's obligations; design management; document management; purchase quality; product identification; management of the processes of providing services; customer service quality assessment; management of control, measuring and implementation equipment; corrective actions applied in the case of established discrepancies in the provided services; loading, unloading, storing, packaging, supply and storage of the product; customer interaction; control over data related to service quality; internal audits related to service quality; personnel training; statistical methods. From a methodological point of view, ISO standards answer the question of what needs to be done to ensure a high level of service, and the question of how to do so is the TQM (Total Quality Management) concept. The latter is geared to improving service when a certain level has already been reached and the implementation of ISO 9000 standards is aimed at reducing the likelihood of deviations. As a result, they complement each other in order to achieve a unified goal, but at different stages of the enterprise's business to provide the necessary level of customer service. The development of ISO 9000 and TQM-based methods is linked to the possibility of integrating the two approaches (Table 1). Table 1. Conceptual elements of ISO 9000 and TQM Elements
Importance for the concept ISO 9000
TQM
Great
Great
Creating Workgroups
App. Medium
Great
Methods and Instruments
App. Medium
Great
Medium
Голяма
Official Quality Standards
Great
App. Medium
Integrated Quality System
Great
App. Medium
Medium
Great
Leading role of management
Guideline Guidance
Employee Involvement, Credentials, Training
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Journal of Innovations and Sustainability (2017) Vol. 3, No 3
The development and implementation of standards requires the organization to accurately determine customer service types, the cost of providing alternative services, and measures for measuring and controlling the services provided (Ivanov, Zhelezarov, 1999a, p. 128). A key element is the analysis of the target market segment, the specific customers, the product (service) / product line, customer service levels, cost, measurement and control over the application of the standards. At the core of the developed and implemented standards is the development and establishment of the customer service policy, which should start with a consumer demand analysis. It must also take into account the interchangeability of products and the number and characteristics of competitors, as this determines not only the relationship between the organization and customers but also its sales. The need to maintain large stocks and / or use additional transport is the greater the lower the degree of interchangeability of products. The organization should fairly accurately determine customer behavior when needed to fill depleted stocks of specific products as a whole and for the different regional markets. The consequences of stock depletion are not the same for all customers. They are to a large extent determined by the size of the customer and / or the volume of supplies. Losses in such cases are much greater when dealing with large customers and large deliveries, and this proves to be sufficient basis for implementing a different service policy. In this context, it is often practiced to divide customers by importance into different groups using the ABC analysis method. In the process of conducting these analyzes, specific customer requirements (eg, specific delivery dates) need to be precisely established to accommodate the service. Service policy should be tailored to the current competitive level of service on the market, as lower-level tactics places the organization at a disadvantage. However, this also depends on its ability to provide better service at costs that will not significantly affect price competitiveness. Defining the level of customer service should allow for quantitative measurement because tasks such as "ninety percent customer satisfaction" that are pledged in service policy are not easily measurable and therefore difficult to achieve and control. The ambiguous and not easilily quantifiable policy does not provide opportunities to evaluate and control the activities and costs of customer service. In this respect, quantifiable and traceable indicators and targets for each customer service element should be formulated and quantified in service standards, which can be in the following directions:  Product availability - usually measured in terms of saturation with a specific product (stock availability percentage) or order execution (stock performance
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percentage). In the standard for this element, time availability can also be combined to make a measure, such as „ninety-five percent of orders to be delivered on time and in full“. Product availability is a critical element of service. Therefore, it is recommended that the company has standards for the number and percentage of correctly executed orders over a certain period of time. Order cycle length - It is one of the most frequently treated elements in service standards. It is usually formulated as a percentage of orders executed for a certain number of days after receipt - for example, "ninety-five percent of deliveries made within three days of receipt of the order". To determine the compliance of time standards with customer needs, managers plan cumulative distributions on actual delivery times and compare them with policy-based policies - for example, if 90% of deliveries within the three days of receipt of the order, the market and customer information for orders received is analyzed to determine how many orders were delivered on time and how much later. Flexibility of the logistics system - Defined in service standards as an organization's ability to respond to special customer needs - for example, organizing very fast shipments when needed. In such cases, tasks are specified in the relevant standard, such as „95% feasibility of fast orders in accordance with customer instructions“. The information security of the logistics system - It is extremely important for customers. In this regard, the company can formulate its information policy in a relevant standard based on user requirements. The availability of such a standard also facilitates the process of controlling the quality of information of the logistics system. Miscarriages in the logistics system - The organization should be able to control and quickly eliminate any deviation with a negative effect on the customer - for example, if a shipment is damaged and can not be used by the customer. Reposting required products requires extra time and is associated with additional costs, which reduces service levels and increases costs. The situation is similar in the case of incorrect invoices as it makes it difficult to establish the amount due. After sales support and service - It is an important part of the development of logistics - for example, equipment assembly, complete supply of spare parts and others. In this direction, standards should be set, mainly for the time of delivery of the required spare parts, by formulating real measurable tasks, eg "95% of all requested spare parts will be delivered on the day of the order".
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In the practical realization of the standardization of the customer service there are also some features: First, the parameters set in the standards should be realistically achievable but not too low. It is necessary for the standard to contribute to the effective realization of the existing and potential competitive advantages of the organization. Second, it is often recommended that service standards be pursued at a level of 100%. This should only be perceived as a philosophy and an ideal, since setting levels below 100% do not stimulate improvements (Ivanov, Zhelezarov, 1999b, p. 202). Thirdly, it is advisable that the organization's policy and standards of service be formed and established in close interaction with customers through consultation with them. Practice shows that the best approach is that organizational policy and service standards are open to customers. Fourthly, the development of procedures for measuring and controlling levels and standards of customer service is a basic prerequisite. Using techniques such as statistical methods of control, maintaining feedback, and undertaking corrective actions are essential to success. If customer service standards are ineffective, the organization should not hesitate to correct or remove them. It should also be noted that the procurement of raw materials of organizations, as a whole, necessitates reaching almost one hundred percent of service levels because costs related to the depletion of commodity stocks are almost always less than the costs of exhausting stocks of raw materials. In such situations, opportunities are usually sought for replacing raw materials with others. Often, however, the following is observed: • The short periods for carrying out specific production activities do not allow them; • A number of raw materials are strictly specialized and specific, their suppliers are limited and replacements are impossible; • Specific technical and technological requirements make it very difficult for troublefree replacement. In this sense, any breach of supply activities may have significant negative consequences for customers (manufacturing enterprises), especially if the depletion of stocks is prolonged. Obviously, the cost of depletion of supply stocks is very high, which requires additional effort on the movement and storage of raw materials. The depletion of stocks of raw materials is linked to causing multiple negative internal and organizational effects - mainly triggering a chain reaction, as the depletion of stocks of raw materials in an enterprise creates problems for the others in the technological chain.
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ALGORITHM
FOR
THE
DEVELOPMENT
OF
THE
STANDARDS
CONNECTED WITH THE BEHAVIOR OF OFFICIALS/EMPLOYEES TO CUSTOMERS When developing service standards in our opinion, it is advisable to apply the following algorithm, which focuses primarily on standards related to employee behavior towards customers: (Golubin, 2007, p. 165-171). First. Field of application Defining the need to create service standards. This need may arise in the following circumstances: • when the business is related to direct communication with the end user in the context of an intensifying competitive market struggle, whereby pricing policy, the quality of the goods or service being sold and the level of service in the organizations are almost the same. The organization should distinguish itself from its competitors with its approach to customers in order to attract and retain the attention of the desired category of customers; • when expensive and prestigious products are offered which in themselves require a well- thought approach, representation, delivery and aftercare; • when the organization has several subdivisions and strives to impose an equally good, familiar and customary style of service regardless of the remoteness of the site from the head office; • when the aim is to ensure fast and quality control of the high level of service. The tremendous advantage of implementing standards is that they already set those values, which should match the behavior of vendors. Second. Features of conversion Service standards should be implemented in a comprehensive manner. It is expedient to apply the following ways to implement management elements that provide efficiency: • preparation of the exact description of the behavior, based on the service standards; • training of employees for work habits in accordance with the developed standards; • training of specialists managing personnel, to be in line with standards; • developing a control system to monitor whether employees' actions are in line with standards;
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• development of a system for motivation and stimulation of the personnel, who have mastered the standards of service; • implementing
samples
-
preparation
of
all
documentation
(provisions,
instructions, quick reference lists) for managers and contractors based on service standards. Third. Preparation of organizational standards of service Stage 1. Description of the employee's actions when interacting with the client. Task - to prepare an accurate description of the employee's actions based on the relevant service standard sections: telephone conversation; greeting; conducting a dialogue; exit from a prolonged conversation; communication with an inadequate client; arranging accounts with the customer; re-visit (standards of conduct with standing clients); goodbye; behavior of staff in conflict situations. Order to develop standards: • Placing a task by the client. • Surveillance of successful clients' work with the aim of describing the principle consistency of the actions of the employees in the organization (Zhelezarov, 2006). • Making inquiries among client specialists to clarify opinions on optimal action in line with service standards. • Conduct a training or seminar with key organizational staff to appraise the standards developed and optimize them. • Describing the standards in a form for the principle sequence of actions. • Meeting the project initiators with the clients to reconcile the developed standards. • Specification of standards with customer wishes. • Validation of the developed standards. The result of this stage is the elaboration of a methodical tool describing the actions of the commercial specialist in accordance with the indicated sections of the standard. Stage 2. Development of a system for controlling the compliance of the employees' behavior with the accepted standards for customer service. Task - Define a system for obtaining objective information (control) about employees' actions and define a circle of people between the employees in the organization who are responsible for implementing customer service standards. Order to develop control system: • Determination of the control criteria, based on the correspondence between the work of the customer care specialist and the service standards.
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• Identify a sufficient number of methods for obtaining information to ensure control. • Development of reporting documentation forms (Letters and Quick Check Lists) for the performance of the functions of control and evaluation of the actions of the specialists. • Description of actions to assure the objectivity of evaluations of responsible professionals on the control and implementation of the developed standards. • Description of the control procedure. • Compiling layouts for the control system in line with customer service standards. • Conducting a mini-seminar to coordinate the main control points with the specialists responsible for it. The outcome of this stage should be the development of the Control System Rules. Stage 3. Changing the motivation of the professionals responsible for the implementation of the standards. Task - to incorporate into the motivation system elements that stimulate the actions of the specialists in the company according to the developed standards. Modification of the motivation system: • All job descriptions are required to include the control of the compliance of employee behavior with service standards. • Identify and validate incentive rates for those who comply with the standards, but also fines for violations. • Establish a new pay system. • Develop and validate incentive rules. The result of this stage should be Rules for the system for motivation and stimulation of the trade specialists in accordance with the new standards Stage 4. Implementation of the developed standards. Task - to explain to staff the appropriateness of adhering to accepted standards. Minimize resistance to change and speed up the process of implementing standards. Order for implementation of developed standards: • Conduct meetings with responsible persons to explain the need for strict compliance with the established standards by the employees of the organization. Explain the essence of innovation, give instructions for the actions of those responsible, clearly outline the sphere of their responsibilities, the level of authority and the resources they can dispose of in their tasks. Answer all questions. • Some points in customer service standards may be added.
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• The result should be focusing on the ability to work with clients in line with accepted standards.
CONCLUSION On the basis of this study the following conclusions are highlighted: • Standards relating to customer service should be developed in the following areas: responsibilities of management; quality control system; supplier's obligations; design management; document management; purchase quality; product identification; management of the processes of providing services; customer service quality assessment; management of control, measuring and implementation equipment; corrective actions applied in the case of established discrepancies in the provided services; loading, unloading, storing, packaging, supply and storage of the product; customer interaction; control over data related to service quality; internal audits related to service quality; personnel training; statistical methods. • The basis for the developed and implemented standards is the development and establishment of the customer service policy, which should start with the analysis of consumer demand. It must also take into account the interchangeability of products and the number and characteristics of competitors, as this determines not only the relationship between the organization and customers but also its sales. • Quantifiable and traceable metrics and targets for each customer service element should be formulated and embedded in service standards. • In developing service standards, it is appropriate to apply an algorithm that focuses primarily on employee behavior standards for customers, which includes four stages with the appropriate tasks and order for developing the standards. In conclusion, ensuring quality customer service requires the development and deployment of standards that require the organization to accurately determine customer service levels, the cost of providing alternative services, and the measurement and control measures for the services provided.
REFERENCES Banabakova, V. (2013). Logistics as a source of competitive advantages - views and fragmentation. Secondary School of Economics, Veliko Tarnovo. Golubin, E. (2007). Effective distribution. Ed. Softpres. S. ISO international standards: https://www.iso.org/standards.html/.
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Ivanov, I., Zhelezarov, I. (1999a). Upravlenie na kachestvoto (Chast I – Vtoro preraboteno izdanie) – Osnovi na upravlenieto na kachestvoto /Quality Management Part I - Fundamentals of Quality Management/. Universitetsko izdatelstvo „Vasil Aprilov”, Gabrovo 1999. Ivanov, I., Zhelezarov, I. (1999b). Upravlenie na kachestvoto (Chast II) – Osnovni instrumenti i statisticheski metodi za upravlenie na kachestvoto /Quality Management Part II - Basic tools and statistical methods for quality management/. Universitetsko izdatelstvo „Vasil Aprilov” Gabrovo 1999. Naydenov, N. (1999). International Marketing. Analysis, strategies, realization. IM "Holding". S. Vasileva, L. (2002). Distribution policy. Part 2. Ed. Thrace - MS. Zhelezarov, I. S. (2006). Statistical process control by means of Precontrol and measuring means with data output. Facta Universitatis, series: Mechanical engineering. 20 (2).
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Volume 3 Journal of Innovations and Sustainability
Number 3 2017
Customer's Profitability Analyses and Customer Service Policies Venelin Terziev1, Vanya Banabakova & Marin Georgiev Vasil Levski National Military University – Veliko Tarnovo, Bulgaria Abstract Most organizations do not pay attention to the customer's profitability. It is also appropriate to improve this activity by first applying a model of customer profitability analysis. One of the basic principles of customer return analysis, which the provider must implement, is to disclose and describe all the expenses, specific to each individual customer. A useful way to uncover these costs is to determine which expenses will be dropped if the customer is discontinued. Appropriate use of ABC is a differentiation analysis to identify which goods and services, which customers are more and which are less profitable for the organization, and depending on how to define the policy for serving different categories of customers and the sale of goods and services with different participation in sales and profits. The present study explores the opportunities of measuring customer profitability, analyzes the connection- service’ expenses, a cost-effective client and presents the application of the ABC method - analysis to distinguish the customer service policy. Key words: customer, customer profitability, customer service’s expenses, ABC-analysis.
INTRODUCTION Marketing is the art of attracting and retaining customers, but not just any, but profitable customers. Unfortunately, organizations often understand that 20 to 40 percent of their customers are unprofitable. Also, many organizations report the fact that their most profitable customers are not the ones who buy the most, but the 1
Corresponding author: Prof. Dipl. Eng. Venelin Terziev, D.Sc. (Ec.), D.Sc. (National security), Ph.D.
Corresponding Member of the Russian Academy of Natural History, Moscow, Russia E-mail: terziev@skmat.com
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average shoppers. Major customers require special service and get the biggest discounts, thus reducing the company's profits. The smallest customers pay the full price and get a minimum of service, but the cost for their transactions reduces the profitability they earn. Average customers enjoy good service, pay almost the whole price, and in many cases prove to be the most profitable. Therefore, a number of large organizations, which initially target only large customers, are then oriented towards the average customer market. An organization should not pursue and satisfy every client. Some organizations are trying to do whatever customers offer. Although customers often make very good suggestions, they sometimes offer quite inadequate and unprofitable suggestions for the organization. Random compliance with them may divert the organization from its market focus. That is why a strict selection of the clients to be serviced and careful consideration of the respective combination of benefits and prices to be offered will be required (Banabakova, 2013, p. 72). Orientation should be to cost-effective customers. This in turn requires the definition of a "cost-effective customer". The purpose of the present study is to explore the possibilities of measuring the profitability of customers, to analyze the relationship between service costs - a costeffective customer and to present the application of the ABC method - analysis for differentiation of the customer service policy.
DETERMINING THE PROFITABILITY OF THE CUSTOMER According to Philip Kotler, a cost-effective customer is a person, a household, or a company that earns revenue over a certain period of time, and the contribution exceeds the company's costs of attracting, persuading, purchasing, and servicing (Kotler, 1996, p. 62). Attention should be paid to the profits and costs that the customer carries to the organization for a long time rather than a specific purchase. The fact is that most organizations do not pay attention to the customer's profitability. It is advisable to improve this activity by first applying the following model for profitability analysis (Petro, 1990, p. 48-52) (Figure 1). In the model, customers are stacked in columns, and products in rows. Each square has an indication of the profitability of the sale of the given product to the designated customer. From Figure 1 it is clear that customer 1 is very cost-effective because it buys three cost-effective products - P1, P2 and P4. Client 2 presents mixed profitability, as it buys a cost-effective and unprofitable
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product. Client 3 is at a loss for the organization because it buys one profitable and two unprofitable products.
Clients С1
Product
Р1
++
Р2
+
Р3
С2
+
+
Mixed-type
effective client
client
product
product -
-
High-cost-
High-cost-effective
Profitable
+
-
Р4
С3
Non-profit product Non-determined product
Noneffective client
Figure 1. Analysis of the profitability of the client-product relationship
Based on this model, the question arises as to what the organization can do in this situation. First - It can raise the price of the more unprofitable products or eliminate them. Second - It can try to transfer cost-effective products to unprofitable clients. If these customers decide to leave, this may be good. In fact, it can be argued whether it may turn out to be more profitable for an organization to encourage the dropping off of its unprofitable clients. One of the main issues that traditional cost reporting procedures can hardly answer is how much is a client's income greater than the income earned by another. Organizations typically calculate customer returns only on the basis of gross profit. In other words, from the revenue generated by a customer they subtract the full cost (full cost) of the goods sold. In practice, however, there are still many costs that need to be taken into account before calculating the real yields of each particular client. The same is true when the profitability of a market segment or distribution channel has to be disclosed (Terziev & Banabakova, 2017, p. 107). The magnitude of costs for customer service depends entirely on how the organizational strategy will be designed. The analysis of customer returns shows that often some customers have a negative contribution. Grouping of customers should
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be done according to the ABC analysis methodology (Makedonska, 2001, p. 128). Reasons for different yields are due to the fact that customer service costs can vary considerably, whether they buy the same or different quatities of company output. Service expenses start with the order itself. They can be identified by determining: the time spent by the sales agent for the client concerned; Is there a responsible manager whose time is spent wholly or partly on the client concerned? what commission you will have to pay for this sale, and more. Costs then arise for the construction (completion) of the order, which differ from each other according to the number of desired modifications in the order and their complexity. Add to them the costs of transport, safe-keeping and storage. Besides, there are additional costs associated with product packaging according to customer's desire (Zhelezarov & Hristov, 2007). It is a common situation for the supplier company to organize special cash funds for some clients. They are spent on joint incentives to promote sales, product advertising, additional sales concessions, and more. If a trader decides to promote sales of a particular type of product through a special packaging, this may result in additional hidden costs for the supplier. They result from a number of reasons such as: violating the business plan of the supplier enterprise; maintaining additional inventory of the particular product and others. Typically, this type of spending is very rarely reported for each specific customer, so they have an implicit character. One of the basic principles for customer return analysis, which the provider must apply, is to disclose and describe all customer-specific costs. A useful way to uncover these costs is to determine which costs will be dropped if the customer is discontinued. A major advantage of the principle of dropping costs is that much of the cost of customer service is actually distributed among several. For example, the distribution warehouse is a good confirmation of this claim. If the supplier uses the storage space for other purposes, then it will be incorrect to allocate part of the total warehouse cost to only one customer. An indicative list of costs is presented in Table 1, which is an integral part of the client's profitability statement. The costs thus incurred inherent in the respective customer should be deducted from the revenue (net income from sales).
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Table 1. Operative profitability report Expenditure inherent in the client Sales costs of the specific product range Commissions Telephone conversations about sales Committed time of responsible manager Trade and special discounts Batch processing costs Expenditure on stimulating sales (apparent and hidden) Advertising costs Costs for non-standard packaging Costs of storing stocks of products with specific packaging Expenditure on storage areas for stocks of specially packaged products Warehouse handling costs Transport costs Documentation and communication costs Expenditure on returned or refused items Commercial credit
If the activity of the organization is linked to many clients, it would not be profitable to perform a separate analysis of the profitability of each of them. In this case, it is best to select those clients who are representatives of certain similar segments of their characteristics. This will give us a quicker view of the relative costs associated with a particular type of customer, market segment, or distribution channel. An application is a baseline model for reporting the contribution of each customer who can target when disclosing those costs that are directly related to a particular customer or group of clients. This gives an opportunity to assess which of the costs would be dropped in case of discontinuing contacts with a client or it would be lost due to competition on the part of other companies (Makedonska, 2001, p. 131). Starting point for the model is the gross revenue generated by the execution of a specific order. From them we deduct all discounts that are made for that particular customer and the order. This results in the net revenue from the sale of the items in the order. Accordingly, from net revenues we deduct direct production costs. Indirect costs are included in the calculations only when they are absolutely related to the particular client. Similarly we proceed with the cost of sales and marketing. After subtracting the inherent distribution costs, the gross contribution (income) of the respective customer is obtained. Finally, all other costs that are directly related
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to the buyer are deducted, such as trade credits, returned or declined products, and others. The resulting balance represents the so-called net contribution of the client. It shows how much the customer contributes to covering the company's fixed costs and how much they help to realize the company's profits. However, if the analysis continues with attempts to distribute the company's fixed costs to the client, a fictitious image of its yield can be generated. The allocation of fixed costs to different orders (clients) is considered an incorrect approach as it generates many problems and leads to mistaken decisions. However, as long as the net contribution of a client has a positive value and there are no other "alternative costs" of service, the organization has a greater interest in the customer being detained rather than rejected. The information of the size of net contribution can be used in the following directions: • When negotiating a particular order. • As a basis for developing the marketing strategy of the company, which will direct it towards a more profitable business. • Developing alternative management strategies for the customers with high logistics costs. The ideal case for any organization is for all its clients to be profitable in the medium and the long term. In this regard, appropriate ways of retaining and furthering the profitability of these buyers, which bear the organization's current profit, should be sought.
MODEL FOR DIFFERENTIATED SERVICING OF MARKET SEGMENTS BASED ON ABC ANALYSIS Customers differ in several important points: what they buy, how much they buy, what schedule their purchases follow, what delivery times for the ordered goods they require and others. Customer differentiation on these and other signs can serve to determine strategy and operational decision-making related to service. The purpose of differentiation is to establish which goods and services and which customers are more and less profitable for the company and depending on this to define the policy in servicing different categories of customers and in selling goods and services with different participation in sales and profits.
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In this sense, ABC analysis is a very good method for such differentiation. For the purpose of service management, the ABC analysis should be implemented in two stages (Vasileva, 2002, p. 296-299). In the first stage, the product groups and their varieties are classified according to their participation in the volume of sales and in the profit realized. Most often, the classification is done in three groups, but more groups can be divided (Zhelezarov, 2008, p. 476-479). Group A includes products and assortment varieties that have the largest share in sales volumes and profits. They are most often in demand and are bought in large quantities by relatively constant customers. Their assortment varieties are usually not large, but sales are high, so stock turnover is the largest and their size is small. Group B includes products and assortment varieties with a smaller share of sales volumes, a larger range of interchangeable varieties, and therefore larger stocks of goods should be maintained to ensure a high level of service for the customers. Group C includes products and assortment varieties with the smallest share of sales volumes, a wide variety of assortment varieties, a slow stock turnover, and therefore larger stockpiles need to be maintained to maintain the desired level customer service. These commodity groups are the least profitable for the company, but their offering gives customers the impression of a wide variety of selection and opportunities for a wide choice. It is possible that this group also includes low-priced goods that are purchased by customers with lower solvency. According to this logic, several groups of goods can be differentiated according to the two criteria: relative share in sales and relative share in the realized profit. In the second stage, customers should be categorized according to the product groups they buy and the respective quantities. Customers who regularly buy large quantities of goods mainly from Group A are most profitable for the company because they contribute to the realization of the bulk of sales and profits (Dichev & Zhelezarov, 2008, p. 435-440). The most unprofitable for the company are the customers who buy small quantities of the most unprofitable groups - C and other. Typically, such customers are the most numerous and the company can not give up from servicing them. However, it will not set the same conditions for servicing this category of customers as compared to customer service in the first category. ABC analysis allows us to rank goods and customers and find the most appropriate combinations. Profitable combinations are those in which customers in the first category buy Group A products or the combination of first-class and C-group
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products. For the next combinations, sales volume and profitability declines until we reach the losing combination of customers, who buy small quantities and are looking for low-priced products, but with greater choice and substitutability. The main task of service management is to win customers - to buy more, to return for new purchases and to attract new customers. This can be achieved by offering an optimal order fulfillment cycle, by maintaining a stock level to ensure security of order execution, and by providing additional free and payable services, differentiating service delivery (Banabakova, 2013, p. 189). In some cases, however, it is expedient for the organization to adopt a policy of individual customer service. Such cases are: • Customers are not numerous, but they are permanent and each of them has a significant share in sales and profits; • The commodity groups offered do not have a complex assortment but have complex technical parameters (eg machines, household appliances, etc.); • Each customer has individual requirements for service conditions, especially with regard to the order execution cycle, after-sales services, and more. Individual customer service requires more costs due to non-standardized procedures and operations, but provides greater flexibility and compliance with customer satisfaction requirements and solvency. Individual service is appropriate for greater customer differentiation, and in particular it targets those customers who are constantly buying in large quantities, are solvent and have established a long-term relationship with their supplier. • On the basis of this study, the following conclusions are made: • It is inappropriate for organizations to try to do all that customers offer. We need a strict selection of the clients to be served and careful consideration of the relevant combination of benefits and prices that will be offered. • Orientation should be to cost-effective customers, focusing on the profit and costs that the customer carries to the organization over a long period rather than on a particular purchase. • One of the basic principles for customer return analysis, which the provider must apply, is to disclose and describe all customer-specific costs. A useful way of detecting these costs is to determine which costs will be eliminated if the customer service is discontinued, taking into account the main advantage of the cost-cutting principle that much of the cost of customer service is actually distributed among several of them.
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• It is appropriate to apply a base model to account for the contribution of each customer that can disclose those costs which are directly related to a particular client or group of clients. This gives an opportunity to assess which of the costs would be dropped in case of disconnection with a customer or the client would be lost due to competition from other companies. • Customer differentiation can serve to define the strategy and take operational decisions related to the service. The aim of differentiation is to establish which goods and services and which customers are more and which are less profitable for the organization and depending on this to define politics in servicing various categories of clients and the sale of goods and services in accordance with the different participation in sales and profits. On this basis, it is appropriate to apply the ABC analysis as a very good method for such differentiation.
CONCLUSION In conclusion, the measurement of customer profitability and their differentiation, as well as the differentiation of the product groups sold by the organization, makes it possible to adopt and carry out a differentiated service policy mainly on the following elements: order fulfillment cycle; the level of supported commodity stocks, depending on the demand and the contribution to the realization of the profit; minimum quantities to order from individual commodity groups; extending the delivery time with the required consolidation time (merging small consignments) for shipments to customers; choosing the type of transport when shipment is provided by the supplier as well as geographic territories, distribution channels and product lines, and others. Management should inform all employees and those responsible for sales, how to achieve the objectives of customer service.
REFERENCES Banabakova, C. (2013). Logistics as a source of competitive advantages - views and fragmentation.Department of Economics, NMU-Veliko Tarnovo. Banabakova, V. (2013). Marketing model to satisfy the client with quality logistical service. Land Forces Academy Review. Dichev, D., Zhelezarov, I. (2008) Interval estimate of constant quantity at known variance. HIPNEF. Kotler, F. (1996). Marketing Management.
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Makedonska, D. (2001). Logistics. University of Economics - Varna. Petro, Th. (1990). Profitability: The Fifth "P" of Marketing, Bank Marketing. Terziev, V., Banabakova, V. (2017). Marketing. Institute of Knowledge Management, Skopje, Macedonia. Vasileva, L. (2002). Distribution policy. Part 2. Ed. Thrace-M. S. Zhelezarov, I. (2008). Metodi za statistichesko upravlenie na protsesite /Methods of statistical process management/. „UNITEH�, Tehnicheski universitet, Gabrovo. Zhelezarov, I., Hristov, H. (2007). Integrated Management Systems. Radmi. Belgrade.
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