Transfer Pricing for Air Force Depot-Level Reparables

The Air Force implemented stock funding to manage most depot-level reparables (DLRs) in FY 1992. The working capital fund charges customers for their purchases of serviceable DLRs, pays them for the return of items needing repair or replacement, and purchases depot-level repair and replacements. Stock funding gives customer commands responsibility for obtaining budgets to purchase DLR repairs and replacements. The market-like system was intended to provide customers with incentives to make cost-effective repair decisions at the local level. This report discusses problems that may result from these incentives that affect the Air Force's ability to efficiently meet its support goals. The authors recommend that the structure of DLR prices be changed to improve the compatibility of customer incentives and overall Air Force support goals. The price system should be structured so that customers face the costs their decisions impose upon the support system. In other words, costs should be recovered through a series of charges to the customers responsible for generating those costs.