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Is DoD moving too quickly to merge commissaries and exchanges?

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Deputy Secretary of Defense David L. Norquist has given the green light to consolidation of military commissaries and exchanges — pending changes in law that would allow that consolidation.

Norquist’s Aug. 19 memo marked his official agreement with the recommendation to consolidate the Defense Commissary Agency, the Army and Air Force Exchange Service, the Navy Exchange Service Command, and the Marine Corps Exchange into one entity. That merger was recommended by DoD’s chief management officer, following a business case analysis.

“The department’s intent is to improve community services for our service members and families, improve support to commanders, and fulfill its fiduciary responsibility” concerning taxpayer dollars and morale, welfare and recreation funds, stated Norquist.

But advocates, long concerned that this consolidation may pose a threat to the stores’ future, are concerned that DoD is moving too quickly.

“This is a bold document,” said Kelly Hruska, government relations director for the National Military Family Association. “We are concerned that DoD is moving forward much too quickly with their recommendations. We don’t think they’re considering the risks to the defense resale system as a whole.”

In March, NMFA was among a group of 27 groups in The Military Coalition, who wrote a letter to House and Senate armed services committee leaders expressing their concerns that the consolidation will cost more than anticipated and fail to result in projected savings in operational costs. If those predictions are accurate, they said, the defense resale system may be unable to provide the low-cost groceries and support for morale, welfare and recreation programs that service members, their families and survivors rely on.

Current law prohibits consolidation of commissaries and exchanges. Norquist lays out actions that can be taken to prepare for the merger in the event the law is changed — such as determining whether any legal mechanisms currently exist in DoD for financing a consolidated resale enterprise.

The move comes as the House and Senate armed services committees are in the midst of conference about the fiscal 2020 National Defense Authorization Act. A provision in the House version of the bill would delay any military store consolidation until the Government Accountability Office has conducted a review of DoD’s business case analysis. That GAO report would include information such as implications for the financial viability of the military exchanges and commissaries if they are consolidated; and the ability of exchanges and commissaries to provide earnings to support morale, welfare and recreation programs under a consolidated model. It also calls for review of the DoD’s analysis related to pricing, sales assumptions, accuracy of methods that measure customer savings levels, timetable for consolidation, and budget and oversight implications.

“I have more questions than I have answers,” said Hruska. “We think DoD should hold off on consolidation until a GAO study is complete.”

There have been 12 studies between 1989 and 2015 that studied the idea of consolidating all the military exchanges and the commissary agency, but this is the first time DoD officials have had agreement from all the military services about consolidation. Navy and Marine Corps officials didn’t initially agree with the concept, and cited disagreements with the business case analysis, but they eventually acquiesced. House lawmakers also asked GAO to look at the extent to which DoD addressed the concerns of the service secretaries and service chiefs about consolidation.

The services commissary stores were consolidated into one agency, the Defense Commissary Agency, on Oct. 1, 1991.

A DoD task force which began its work a year ago determined that “the benefits from consolidation outweigh the expected costs of consolidation.” The task force projected cumulative savings of $700 million to $1.3 billion over the first five years, with $400 million to $700 million in recurring annual net savings afterward. The cost of implementing the consolidation in the first year is estimated at $75 million, doubling in each of the three years after that.

The report noted substantial duplication in management and back-office functions, redundant supply distribution chains, and highly overlapping product lines, particularly among the exchanges.

Consolidation could happen without any change to the customer’s experience, and no store closings would be anticipated, the DoD task force reported.

Over the years, defense officials have proposed budget cuts to commissaries, which are currently operated with about $1.4 billion a year in taxpayer dollars to allow the stores to sell groceries at a discount. Concerns have been raised about where the savings will be going in this consolidation — and whether the money that’s been used to fund morale, welfare and recreation programs would be used to underwrite the cost of commissaries.

By law, as commissaries have been undergoing reforms, they must still be able to maintain the savings level baseline, determined at the global overall average in 2016 of 23.65 percent, compared to local commercial grocery prices. If the savings decline, DoD will use taxpayer dollars to shore up the benefit.





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