Implementing Variable Cost Pricing in the Transportation Working Capital Fund
Dec 16, 2021
The authors assess the financial viability and current structure of the Transportation Working Capital Fund, which funds most U.S. Transportation Command operations, including providing peacetime transport for U.S. Department of Defense customers and maintaining surge capacity required during wartime. The authors also make recommendations, tailored to USTRANSCOM lines of business, to improve the fund's effectiveness and efficiency.
Assessment and Recommendations to Improve Effectiveness and Efficiency
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U.S. Transportation Command (USTRANSCOM) manages the Defense Transportation System, which provides peacetime transport for U.S. Department of Defense customers and maintains surge capacity required for wartime needs to project and sustain military power. Most of USTRANSCOM's operations are funded by the Transportation Working Capital Fund (TWCF). The National Defense Authorization Act for Fiscal Year 2020 created a requirement for an independent review of the TWCF, with the purpose of assessing the TWCF's current structure and offering recommendations to improve the fund's effectiveness and efficiency through changes to its cost-recovery structure. This report describes that review.
The authors found that improvements to the TWCF are possible. Specific recommendations vary by USTRANSCOM line of business, but, overall, the authors recommend adopting a Variable Cost Pricing model. This model, preferred in the business and economics literature as the best way to guide customer decisionmaking to support enterprise objectives, suggests that customers should pay for the costs that they impose on the system (variable costs) and that other costs should be recovered separately from rates for movements. For most business lines, this model preserves the workload that USTRANSCOM relies on to generate readiness while improving cost-control incentives for both USTRANSCOM and its customers. However, a more detailed analysis of USTRANSCOM business processes, information systems, and personnel requirements is needed to inform implementation decisions.
Assessment of the Current Structure of the Transportation Working Capital Fund
Recommendations to Address Shortfalls
Summary of Findings and Recommendations
Course of Action Analysis, by Line of Business
This research was sponsored by the Office of the Under Secretary of Defense (Comptroller) and conducted within the Acquisition and Technology Policy Center of the RAND National Security Research Division (NSRD).
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