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Report to the Secretary of Defense -- Re-Examining Best Practices for DoD Fuel Acquisition

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Research rept.

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In 2010, the Department of Defense DoD spent more than 13 billion on petroleum fuel products. This represents approximately 2 of DoDs budget. DoD relies upon a market reserve fund, or working capital fund, to buy fuel based on spot market prices. As a result, DoD does not exercise price protection techniques for its future fuel purchases. The price of fuel has fluctuated from 35 per barrel in 2004 to 140 per barrel in 2007. Given these broad market fluctuations, DoD may be missing cost saving opportunities by not utilizing management tools to protect future prices and reduce risk. In an effort to identify private sector best business practices to purchase large fuel volumes, the Chairman of the Defense Business Board created the Task Group on Re-examining Best Practices for DoD Fuel Acquisition. This study is a followup to a 2004 Board study that reviewed fuel hedging and examined potential opportunities to help reduce DoDs exposure to fuel price volatility. In 2004, the Task Group reviewed whether fuel hedging techniques employed in the private and public sectors could be applicable and valuable to DoD. This study was designed to align with the decisions regarding fuel hedging outlined in DoDs Program Budget Decision 602, Fuel Inflation, from December 30, 2002. In this 2011 study, the Task Group evaluated large volume fuel purchasing processes used by the private sector, public entities, sovereign nations, and DoD. The Task Groups deliverables included the following 1 an overview of DoDs fuel purchasing practices 2 an overview of DoDs historical practices of fuel hedging 3 a review of best business practices and processes for effective fuel hedging 4 a description of the fuel hedging options available to DoD 5 a description of key risks and opportunities of a fuel hedging program and 6 a summary recommendation that identifies the management initiatives and controls required for implementation and execution. 27 briefing charts

Subject Categories:

  • Administration and Management
  • Economics and Cost Analysis
  • Logistics, Military Facilities and Supplies
  • Fuels

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