448th Supply Chain Management Wing
448th Supply Chain Management Wing
Operating Location – Hill
Working Capital Fund / CSAG-S Overview
Mike Vaughan
448 SCMW/FM OL-Hill
DSN 777-1872
michael.vaughan@hill.af.mil
26 Mar 13
Global Logistics – Warfighter Focus
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
DWCF
$115B
AFWCF
$27B
CSAG
$9B
CSAG-S
$3B
CSAG-S Hill
$0.5B
 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
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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
Balance WCF
operations to
customer
funding
Set rates to
break even over
time
Maintain cash
liquidity
(by law)
Stabilize rates
(some exceptions)
Temporarily
hold gains and
losses
The Air Force Working Capital Fund (AFWCF) is the Air Force’s 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
Balance WCF
operations to
customer
funding
Set rates to
break even over
time
Maintain cash
liquidity
(by law)
Stabilize rates
(some exceptions)
Temporarily
hold gains and
losses
The Air Force Working Capital Fund (AFWCF) is the Air Force’s 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
WCF
Appropriated
Tax
Treasury Warrant
$
Treasury
OSD
Requirements
Appropriated Funds
Working Capital Funds
Air Force
CSAG
MAJCOM
$ DPEM
Perform Maintenance
Revenue
Supply Parts
$ DLR
Spares – Warfighter
Global
Logistics
Focus
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AFWCF Basic Concept
Post CAM (Flying Hour)
Congress
$
WCF
Appropriated
Tax
Treasury Warrant
Treasury
OSD
Requirements
Appropriated Funds
Working Capital Funds
Air Force
CAM
CSAG
Lead
MAJCOM
$ DPEM
Perform Maintenance
Revenue
Supply Parts
$ DLR
Spares – Warfighter
Global
Logistics
Focus
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Customer/Provider Relationship
Congress Appropriates
Funds to AF MAJCOMs
Field Requisitions
Parts
Appropriated
Funds
MSD replaces
Shelf Stock
Carcass
Returned
Work Authority
WCF
Carcass
sent to Depot
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WCF Concepts – Prices & Rates
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
Maintain cash
liquidity
(by law)
Stabilize rates
(some exceptions)
Temporarily
hold gains and
losses
The Air Force Working Capital Fund (AFWCF) is the Air Force’s component of the
Defense Working Capital Fund (DWCF)
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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
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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)
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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
Balance WCF
operations to
customer
funding
Set rates to
break even over
time
Maintain cash
liquidity
(by law)
Stabilize rates
(some exceptions)
Temporarily
hold gains and
losses
The Air Force Working Capital Fund (AFWCF) is the Air Force’s component of the
Defense Working Capital Fund (DWCF)
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WCF Does NOT Get Funds To Operate
We 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
Obligation Authority
Treasury
Warrant
 AFWCF cash is independent from AFWCF Obligation Authority
Treasury
Warrant
AFWCF
Contract Authority
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
Leakage From:
• Rework
• Prices too low
• Too much inventory
• Internal Cost Over-Runs
Expenses:
• Operations Costs
• Investment Costs
• Finished Goods/Services
• Repair Costs
• Inventory Costs
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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 Topics
Sequestration Impact on WCF
REVENUE CUTS:
Flying Hours Cuts
Associated reduction in customer
O&M Funding
Decrease in CSAG-S Sales
Revenue from:
• Cash from Sales
• Advanced Billings
• Appropriated Infusion
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 Infusion
7-10 Days
DoD 7000.14-R, Vol 2B
Leakage From:
• Rework
• Prices too low
• Too much inventory
• Internal Cost Over-Runs
DANGER:
• 31 USC 1517 ADA
• Subdivision
Expenses:
• Operations Costs
• Investment Costs
• Finished Goods/Services
• Repair Costs
• Inventory Costs
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Common Topics
Point of Sale
CSAG-S
Wholesale Inventory
Control Point
Revenue
Sale / Issue
Retail Depot/Base
Supply
Revenue
Sale / Issue
Customer
Other
Service/Agencies
 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
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Common Topics
Free 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 Topics
Prices 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 Topics
Loans 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
J018
D200A
D043
 Latest Repair Cost (LRC) is the weighted average
of the latest repair costs from CSAG‐MX and
Contractor repair facilities
G004L
MISTR
D200N
D043
G019C
CAV-AF
D200N IPS does not price: Iterative Items
SICA Items
NC/ND Items
Global Logistics – Warfighter Focus
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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