26 Mar 13

Global Logistics – Warfighter Focus

448th Supply Chain Management Wing

448th Supply Chain Management Wing Operating Location – Hill

Working Capital Fund / CSAG-S Overview

Mike Vaughan448 SCMW/FM OL-Hill

DSN [email protected]

26 Mar 13


Agenda

What is the Working Capital Fund (WCF)?– History– Authority– Scope

WCF Funding Concept – Operations– Process Pre-CAM / Non-Flying Hour– Process Post-CAM / Flying Hour– Customer / Provider Relationship

WCF Funding Concepts – Prices, Costs, and Rates WCF Funding Concepts – Cash Common Topics Summary

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What is a Working Capital Fund?

The WCF is a Financing Mechanism– Artificial economic construct designed to replicate market forces in the

management of supply Materiel Buy, Materiel Repair, and Overhead Cost of Operations

– Used to manage a subset of assets severed from O&M environment Budget Code 8 – Reparable Spares (consumables by exception)

A closed system in which all income is derived from its operations and is available to finance the Fund’s continuing operations without fiscal year limitations– Financial resources to permit continuing operations are generated by

the acceptance of customer orders – Sales

Key Concept: Unlike appropriated funds, a revolving fund temporarily holds gains and losses – the key to its flexibility

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History:Revolving Funds

Since 1870 the U.S. military has used two primary types of revolving funds—stock funds and industrial funds

Originally, two types of revolving funds (financed primarily by reimbursements from customers' appropriated accounts):– Stock Funds ‐ for supplies, fuel, food, etc.

– Industrial Funds ‐ for maintenance, overhaul, repair, and modification of weapon systems and components, etc.

Defense Business Operations Fund (DBOF) was established October 1991 under authority of Title 10, U.S. Code, Section 2208– Merged existing stock and industrial funds and added five defense

commercial operations

USD(C) disestablished the DBOF on December 1996 and established the Defense Working Capital Fund (DWCF)– Changed the names, but not the concepts

– Consolidated nine funds into four

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Authority of Title 10, USC 2208

To control and account more effectively for the cost of programs and work performed in the Department of Defense, the Secretary of Defense may require the establishment of working-capital funds in the Department of Defense to:

– (1) finance inventories of such supplies as he may designate – (2) provide working capital for such industrial-type activities, and

such commercial-type activities that provide common services within or among departments and agencies of the Department of Defense, as he may designate

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Scope and Purpose

CSAG Supply is primarily responsible for Air Force‐managed, Depot‐level reparable spares and consumable spares unique to the Air Force (Budget Code 8)– In addition to management of these

inventories, the Supply Division provides a wide range of logistics support services requirements forecasting item introduction cataloging provisioning technical support data management item disposal distribution management and transportation

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WCF Concepts

The Air Force Working Capital Fund (AFWCF) is the Air Force’s component of the Defense Working Capital Fund (DWCF)

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Operate like abusiness andearn revenue

Identify andrecover total

costs

Set rates tobreak even over

time

Stabilize rates(some exceptions)Maintain cash

liquidity (by law)

Temporarilyhold gains and

losses

Balance WCFoperations to

customerfunding


WCF Concepts


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costs


time


liquidity (by law)


losses


customerfunding


Objectives of the WCF

Provide managers with modern management concepts and tools comparable to those utilized by private enterprises

Motivate forward-looking financial planning by creating a financial dependence on reimbursements received for goods and services

Create a contractual relationships between WCF activities and the customers for WCF managed end products

Instill a greater sense of responsibility and self-restraint in balancing the cost of goods against the benefit of potential reimbursement

Motivate critical evaluation of purchase cost as well as quality and delivery-speed of goods and services ordered

Facilitate budgeting for and reporting of the costs of end-products

Provide flexibility to changes in supply and demand

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AFWCF Basic ConceptPre CAM

CA

CongressCongress

Air ForceAir Force

OSDOSD

MAJCOM

Appropriated

Revenue

Perform Maintenance

Supply Parts

$ DPEM

$ DLR Spares

CSAG

Requirem

ent Requirem

ent

RequirementsAppropriated FundsWorking Capital Funds

Treasury

WCFAppropriatedTreasury Warrant $Tax

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AFWCF Basic ConceptPost CAM (Flying Hour)

CA

CongressCongress

Air ForceAir Force

OSDOSD

MAJCOM

Appropriated

Revenue

Perform Maintenance

Supply Parts

$ DPEM

$ DLR Spares

Requirem

ent Requirem

ent

RequirementsAppropriated FundsWorking Capital Funds

Treasury

WCFAppropriatedTreasury Warrant $Tax

Lead

Requirement CAM

Appropriated

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CSAG


Customer/Provider Relationship

Carcass Returned

Field Requisitions Parts

Carcasssent to Depot

Depot “bills”

CSAG-SD

Accounting

Congress Appropriates Funds to AF MAJCOMs

CSAG-SD

Bills Customer

CSAG-SD

“pays” Depot

Accounting

MSD replaces Shelf Stock

Customer pays

CSAG-SD

Work AuthorityWCF

Appropriated Funds

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WCF Concepts – Prices & Rates


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costs


time


liquidity (by law)


losses


customerfunding


CSAG-S Operations:Recovers Costs Via Rates

CSAG-S applies a single overhead rate and a single condemnation recovery rate across all assets– Computed two years in advance of execution– Protects the customer

Rates - based on full cost recovery– Reparable Buy and Overhead– Gains and losses of prior years (AOR)– Depreciation

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Six Costs & Four Prices

Latest Acquisition Cost (LAC) Latest Repair Cost (LRC) Business Overhead Cost Recovery (BOCR)@LAC Business Overhead Cost Recovery (BOCR)@LRC Materiel Cost Recovery (MCR/CEMR) Carcass Cost (CC)

Standard Price (SP) Exchange Price (EP) Unserviceable Asset Price (UAP) Mark‐up Price (MUP)

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WCF Concepts – Cash & NOR


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costs


time


liquidity (by law)


losses


customerfunding


WCF Does NOT Get Funds To OperateWe Get Authority to Spend

CSAG-S operates with Contract Authority– It authorizes you to spend to the limit approved in your PB

When you submitted your budget, you asked for authority to spend to a limit defined by your workload

– Not directly limited by congressional appropriation or CRA; allows uninterrupted operation

The exceptions: we gets real appropriated $ for:– Capital Purchases / Capital Investment Program

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Appropriated Cash vs. AFWCF Cash

Dollar for Dollar – cash is aligned to the appropriated Obligation Authority distributed

AFWCF cash is independent from AFWCF Obligation Authority

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TreasuryWarrant

TreasuryWarrant

Obligation Authority

AFWCFContract Authority

AFWCF cash has to be earned!


AFWCF Sales to Cash

Expenses:•Operations Costs•Investment Costs•Finished Goods/Services•Repair Costs•Inventory Costs

Leakage From:•Rework•Prices too low•Too much inventory•Internal Cost Over-Runs

Revenue from:•Cash from Sales•Advanced Billings•Appropriated Infusion

7-10 Days

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AFWCF Cash Flow Philosophy

Maintain “cash corpus” to cover current disbursements and future Capital expenditures

Maintain a positive cash balance to preclude an Antideficiency Act violation

Target to maintain at least 7‐10 days operating cash

Prices are set to recoup the cost of the item plus inventory/administration costs, AOR recovery, and to adjust cash

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NOR & AOR

NOR – Net Operating Result– Gains or losses from operations in a given year– In business, NOR is considered Net Profit or Net Loss– NOR = Revenue – Expenses

AOR – Accumulated Operating Result– Cumulative profits or losses across time– Target is ZERO

Positive AOR is returned to customer as a rate reduction Negative AOR is recouped with a rate increase or cost cuts Rates are set two years out based on forecasted revenue,

expenses, NOR, and AOR

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Common TopicsSequestration Impact on WCF

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Expenses:•Operations Costs•Investment Costs•Finished Goods/Services•Repair Costs•Inventory Costs

Leakage From:•Rework•Prices too low•Too much inventory•Internal Cost Over-Runs

Revenue from:•Cash from Sales•Advanced Billings•Appropriated Infusion

7-10 Days

REVENUE CUTS:

Flying Hours Cuts

Associated reduction in customer O&M Funding

Decrease in CSAG-S Sales

OBLIGATION CUTS:•Civilian Pay•Contract Funding•Supplies•Travel

•Materiel Buy & Repair

EXPENSE CUTS:•Obligations are not Expenditures

• <15% Materiel Buy• <20% Materiel Repair• ≈100% Overhead

OPTIONS:•CSAG-M Advanced Billings•Appropriated Infusion•Prior Year Pass Through

• Appropriated InfusionDoD 7000.14-R, Vol 2B

DANGER:•31 USC 1517 ADA

• Subdivision


Common TopicsPoint of Sale

Assets “belong” to CSAG-S until they leave wholesales and retail supply

– Point of sale is when assets are issued out of supply

– Customers (yellow) must buy the assets from supply These sales replenish the WCF

Customers are billed and funds obligated at the time of the order

– Customer funds are expended when the assets are delivered

– AFGLSC does not guarantee prices across fiscal years Customers must budget reserves sufficient to pay

for assets at the price in force upon delivery

Wholesale Inventory Control Point

Retail Depot/Base Supply

Customer

Other Service/Agencies

Sale / Issue

Revenue

Sa

le / Issu

e

Re

ven

ue

CSAG-S

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Common TopicsFree Issues

Free issues of assets are potential lost sales that threaten to prevent full reimbursement of the Working Capital Fund– Without full reimbursement through sales the WCF moves toward

insolvency

According to AFMAN 23-110, V1, P3, C7, section 7.10.3, the following circumstances are the only USD(C) approved reasons for Free Issue – Civil emergency relieve assistance or certified military emergency– Foreign disaster according to the Foreign Assistance Act of 1961– Excess assets supporting deficiencies in mobilization requirements

when authorized by the comptroller of the Air Force (SAF/FM)– Wholesales IM transfers to DRMO

Free issues are intended to be extremely limited

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Summary

The AFWCF is a revolving fund that:– Focuses management and work force attention on:

Full cost recovery Full cost visibility

– The AFWCF temporarily holds gains and losses Incur losses greater than budgeted ‐ recover them through

increased rates Produce gain greater than budgeted ‐ gains returned through

lower rates in future Programmed losses and gains are a normal business

practice

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Common TopicsPrices and Credits

The price applied to the transaction is dependent on the WCF relationship with the customer– Exchange Price customers are those with a system designed to track the

turn-in of the carcass DIFM process

Air Force MAJCOMs

Exchange agreement with the WCF

– Standard Price customers are those that are expected not to turn in a carcass Typically lacking access to the Standard Base Supply System

Foreign Military Sales Other Services

Credit Returns are only paid for turn-in of serviceable assets – NIMSC - PICA/SICA transactions are an exception

The turn-in of an unserviceable assets simply allows the purchase of a serviceable asset at Exchange Price vs. the higher Standard Price

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Common TopicsLoans of MSD Assets

Loan process governed by the AFMC Loan/Lease Desk Guide MSD assets may only be loaned for purposes specified in DoD

7000.14R– Reverse engineering– Sample parts– When in the best interest of CSAG-S

Shall not exceed one calendar year Shall not include consumable assets ERRC “N” Shall be returned in the same condition as loaned

– Return packaging and shipping is the responsibility of the recipient of the loan

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Foundation of Prices

Latest Acquisition Cost (LAC) is the price paid for an item the last time it was procured

Latest Repair Cost (LRC) is the weighted average of the latest repair costs from CSAG‐MX and Contractor repair facilities

D200N IPS does not price: Iterative ItemsSICA ItemsNC/ND Items


Cost Recovery Rates

Two Types Cost Recovery– Business Overhead Cost Recovery (BOCR)

Overhead Expenses + Cash Adjustment

– Materiel Cost Recovery (MCR) This recovery of re-procurement costs primarily funds the

replacement of items expected to be condemned

Same Surcharge Factors for all Items– All customers pay share of business operations costs

More Stable CSAG‐Supply Prices– Flat surcharges reduce volatility– Repair cost volatility still exists

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Prices

Standard Price– Price charged to customer that will not return an

unserviceable asset for depot repair – SP = LAC + BOCR @ LAC

Exchange Price– Price charged up front to Due in for Maintenance

(DIFM)/DOTM customers Other agencies through agreement with AFWCF

– Usual Air Force customers that track and return recoverable assets for repair

– EP = LRC + BOCR @ LRC + MCR @ LRC

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Purpose of Pricing

The primary purpose of the price setting process is to recover CSAG‐Supply’s costs from its customers– Repair Costs– Buy Costs– Overhead Costs

CSAG‐Supply charges materiel costs, then spreads overhead costs across all items based on forecasted sales to customers

The intent of the CSAG‐Supply pricing methodology is to neither lose money nor make a profit

Out year adjustments are made to return profits or recover losses

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26 Mar 13

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