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26 Mar 13. 448th Supply Chain Management Wing Operating Location – Hill Working Capital Fund / CSAG-S Overview Mike Vaughan 448 SCMW/FM OL-Hill DSN 777-1872 [email protected] Agenda. What is the Working Capital Fund (WCF)? History Authority Scope

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26 mar 13

26 Mar 13

448th Supply Chain Management Wing Operating Location – HillWorking Capital Fund / CSAG-S OverviewMike Vaughan448 SCMW/FM OL-HillDSN [email protected]


Agenda

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


What is a working capital fund

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


History revolving funds

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 October1991under 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


Authority of title 10 usc 2208

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


Scope and purpose

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


Wcf concepts

WCF Concepts

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

Operate like a

business and

earn revenue

Identify and

recover total

costs

Balance WCF

operations to

customer

funding

Set rates to

break even over

time

Stabilize rates

(some exceptions)

Maintain cash

liquidity

(by law)

Temporarily

hold gains and

losses


Wcf concepts1

WCF Concepts

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

Operate like a

business and

earn revenue

Identify and

recover total

costs

Balance WCF

operations to

customer

funding

Set rates to

break even over

time

Stabilize rates

(some exceptions)

Maintain cash

liquidity

(by law)

Temporarily

hold gains and

losses


Objectives of the wcf

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

9


26 mar 13

CA

Requirement

Requirement

Appropriated

Perform Maintenance

$ DPEM

Supply Parts

$ DLR Spares

AFWCF Basic Concept

Pre CAM

Congress

$

WCF

Appropriated

Treasury Warrant

Tax

Treasury

OSD

Requirements

Appropriated Funds

Working Capital Funds

Air Force

CSAG

MAJCOM

Revenue

10


26 mar 13

Appropriated

CA

Requirement

Requirement

Requirement

Appropriated

Perform Maintenance

$ DPEM

Supply Parts

$ DLR Spares

AFWCF Basic Concept

Post CAM (Flying Hour)

Congress

$

WCF

Appropriated

Treasury Warrant

Tax

Treasury

OSD

Requirements

Appropriated Funds

Working Capital Funds

Air Force

CAM

CSAG

Lead

MAJCOM

Revenue

11


Customer provider relationship

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

12


Wcf concepts prices rates

WCF Concepts – Prices & Rates

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

Operate like a

business and

earn revenue

Identify and

recover total

costs

Balance WCF

operations to

customer

funding

Set rates to

break even over

time

Stabilize rates

(some exceptions)

Maintain cash

liquidity

(by law)

Temporarily

hold gains and

losses


Csag s operations recovers costs via rates

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


Six costs four prices

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)


Wcf concepts cash nor

WCF Concepts – Cash & NOR

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

Operate like a

business and

earn revenue

Identify and

recover total

costs

Balance WCF

operations to

customer

funding

Set rates to

break even over

time

Stabilize rates

(some exceptions)

Maintain cash

liquidity

(by law)

Temporarily

hold gains and

losses


Wcf does not get funds to operate we get authority to spend

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


Appropriated cash vs afwcf cash

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!


Afwcf sales to cash

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


Afwcf cash flow philosophy

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


Nor aor

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 forecastedrevenue, expenses, NOR, and AOR


Common topics sequestration impact on wcf

Common TopicsSequestration Impact on WCF

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

  • Revenue from:

  • Cash from Sales

  • Advanced Billings

  • Appropriated Infusion

  • 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 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


Common topics point of sale

Common TopicsPoint of Sale

CSAG-S

  • 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

Revenue

Wholesale Inventory Control Point

Other Service/Agencies

Sale / Issue

Retail Depot/Base Supply

Revenue

Sale / Issue

Customer

23


Common topics free issues

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

24


Summary

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


26 mar 13

Global Logistics – Warfighter Focus


Common topics prices and credits

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

27


Common topics loans of msd assets

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

28


Foundation of prices

Foundation of Prices

G004L

MISTR

G019C

D200N

D043

CAV-AF

  • 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


Cost recovery rates

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


Prices

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


Purpose of pricing

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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