448th Supply Chain Management Wing Operating Location

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448th Supply Chain Management Wing
Operating Location HillWorking Capital Fund
/ CSAG-S OverviewMike Vaughan448 SCMW/FM
OL-HillDSN 777-1872michael.vaughan_at_hill.af.mil

• 26 Mar 13

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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
  OM 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 Funds 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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HistoryRevolving Funds

• Since 1870 the U.S. military has used two primary
  types of revolving fundsstock 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
Operate like a business and earn revenue
Identify and recover total costs
Set rates to break even over time
Balance WCF operations to customer funding
Stabilize rates (some exceptions)
Maintain cash liquidity (by law)
Temporarily hold gains and losses

• The Air Force Working Capital Fund (AFWCF) is the
  Air Forces component of the Defense Working
  Capital Fund (DWCF)

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WCF Concepts
Operate like a business and earn revenue
Identify and recover total costs
Set rates to break even over time
Balance WCF operations to customer funding
Stabilize rates (some exceptions)
Maintain cash liquidity (by law)
Temporarily hold gains and losses

• The Air Force Working Capital Fund (AFWCF) is the
  Air Forces component of the Defense Working
  Capital Fund (DWCF)

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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 Concept Pre CAM
Congress

Tax
Treasury
OSD
Requirements Appropriated Funds Working Capital
Funds
Air Force
CSAG
MAJCOM
Revenue
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AFWCF Basic Concept Post CAM (Flying Hour)
Congress

Tax
Treasury
OSD
Requirements Appropriated Funds Working Capital
Funds
Air Force
CAM
CSAG
Lead
MAJCOM
Revenue
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Customer/Provider Relationship
Congress Appropriates Funds to AF MAJCOMs
Field Requisitions Parts
CSAG-SD Bills Customer
Appropriated Funds
CSAG Supply
MSD replaces Shelf Stock
Depot bills CSAG-SD Accounting
Carcass Returned
Customer pays CSAG-SD
Work Authority WCF
CSAG-SD pays Depot Accounting
Carcass sent to Depot
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WCF Concepts Prices Rates
Operate like a business and earn revenue
Identify and recover total costs
Set rates to break even over time
Balance WCF operations to customer funding
Stabilize rates (some exceptions)
Maintain cash liquidity (by law)
Temporarily hold gains and losses

• The Air Force Working Capital Fund (AFWCF) is the
  Air Forces component of the Defense Working
  Capital Fund (DWCF)

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CSAG-S OperationsRecovers 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)_at_LAC
• Business Overhead Cost Recovery (BOCR)_at_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
Operate like a business and earn revenue
Identify and recover total costs
Set rates to break even over time
Balance WCF operations to customer funding
Stabilize rates (some exceptions)
Maintain cash liquidity (by law)
Temporarily hold gains and losses

• The Air Force Working Capital Fund (AFWCF) is the
  Air Forces component of the Defense Working
  Capital Fund (DWCF)

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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

Obligation Authority
Treasury Warrant
AFWCF Contract Authority
Treasury Warrant
AFWCF cash has to be earned!
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AFWCF Sales to Cash

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

7-10 Days

• 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

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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
REVENUE CUTS Flying Hours Cuts Associated
reduction in customer OM Funding Decrease in
CSAG-S Sales

• OBLIGATION CUTS
• Civilian Pay
• Contract Funding
• Supplies
• Travel
• Materiel Buy Repair

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

• EXPENSE CUTS
• Obligations are not Expenditures
• lt15 Materiel Buy
• lt20 Materiel Repair
• 100 Overhead

• OPTIONS
• CSAG-M Advanced Billings
• Appropriated Infusion
• Prior Year Pass Through
• Appropriated Infusion
• DoD 7000.14-R, Vol 2B

7-10 Days

• 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

• DANGER
• 31 USC 1517 ADA
• Subdivision

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Common TopicsPoint of Sale
CSAG-S
Revenue
Wholesale Inventory Control Point
Other Service/Agencies
Sale / Issue

• 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

Retail Depot/Base Supply
Customer
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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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Global Logistics Warfighter Focus
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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 Items SICA
Items NC/ND Items
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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 _at_ 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 _at_ LRC MCR _at_ LRC

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Purpose of Pricing

• The primary purpose of the price setting process
  is to recover CSAG-Supplys 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