American Logistics Association
 Logistics is our middle name
 Manufacturers, Distributors and
Brokers represent 95 percent of the
supply chain
 Have a hand and a voice in what
happens
 Can help agency partners get to where
they need to get
Outreach—don’t lobby ourselves
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72 briefings to Senate and House
Economic report
More underway
Frame the argument and shape the debate
Blunt new normal
Support our friends, educate adversaries
Coalition and patron involvement
Energizing advocacy groups – Grass roots
Moving resale to top priority
Congressional Caucus
Messaging – economic, compassionate, mission
DoD outreach—military and civilian
This is no drill
ALA prepared
Revolution is what
happens after the
change already has
taken place.
SITREP
 DoD is targeting the commissary appropriation in its
2015 budget submission, reducing $200 million of the
$1.4 billion annual appropriation in 2015, $600 million
in 2016, and $1 billion in 2017, leaving it with $400
million
 The proposal is direct reduction to military
compensation and is inciting fierce opposition.
 Exchange programs are under stress
 On-base business model threatened
Strategic Choices and Management
Review
 Don’t just chip away at existing structures and
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practices but…fashion entirely new ones that better
reflect 21st Century realities.
Prior modest reforms met political opposition
“We are now in a different fiscal environment dealing
with new realities that will force us to confront these
tough and painful choices.”
Aim to conclude review by May 31, 2013
Foundation for the Quadrennial Defense Review due
to Congress in February 2014
System is strong but fragile
and vulnerable
Convergence of factors all at
once could destroy it
“The law will protect us!!”
Significant dates
 HASC
 Subcommittee marks--April 30, May 1
 Full committee mark—May 6th
 No cuts in subcommittee—maybe in full committee
 SASC
 Subcommittee marks—Personnel May 21, other May 20
 Full committee May 21
 JCS testimony to SASC—May 6
 Compensation Commission Report – February 15, 2015
 HASC-mandated report—February 1, 2015
 Appropriations Bills TBD
FY 2015 Defense Authorization
HASC Bill Language
 Requires review by independent firm experienced in
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grocery analysis.
Look at variable pricing, private label, converting
DeCA to a NAFI, eliminating or reducing SDT
Impact of these changes to enlisted and junionr
officers
Feasibility of genrating net revenue from pricing and
stock assortment changes
Impact of changes on industry support (vendor
stocking, promotions, discounts, merchandising)
HASC Bill Language (cont.)
 Ability of current commissary management and
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information technology systems to accommodate
changes to existing pricing and management
structure.
Category management expertise of DeCA
Impact on exchanges and MWR
Identify necessary legislative changes
Time required to do and recommended changes.
Submit to Congress by February 1, 2015.
Full Committee—May 6th
$100 million reduction?
Part of reconciliation of
entire HASC bill.
Implications/Spin-offs of
Commissary Proposal
Proposal dies outright—no
legislative changes—offset
reductions
Commercial grocers pounce
Exchanges sell food
Compromise solution
Convergence of exchange
challenges
 SDT and base operations funding
 Product and pricing restrictions—tobacco (CVS),
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beverage alcohol
Wage hikes (minimum and SCA)
Shrinking force structure
Commissary as destination
Commissary category encroachment (legislative
proposal)
Off-base competition
Exchange product assortment
Servicemen and women are
entitled to the same
privileges and product access
as the citizens they defend
Early proposal
 Exempts DECA from Small Business Act, Federal Prison
Industries legislation, Service Contract Act, Javits-Wagner-O’Day
Act
 APF for NEXMARTS is eliminated – these operations are
completely and exchange function with no APF subsidy
 Combined commissary & exchange operations no longer exist /
authorized
 DECA can purchase / sell beer & wine (but not distilled spirits)
 DECA is exempt from Berry Amendment (currently required for
supplies such as bags, meat trays, plastic wrap, etc)
 DECA is authorized to supervise construction of surcharge
related projects – avoiding necessity of using surcharge for
Service oversight
 APF funding reduced as follows: FY15 -$200M; FY16 – $600M; FY17
-$1,000M—actual cut unclear----carryover $80M could reduce2015
actual cut or actual offset required to $120 M.
Early proposal
 Can sell other than “brand named” items
 Can sell merchandise at a “marked up” price – which revenue can
be used to paid for operational expenses
 eliminates Congressional notification prior to closing a
commissary – closures become a business decision
 APF support is for operation of overseas and remote & isolated
location
 Competition between military retail activities must be avoided to
greatest extent possible
 Receipts from several other sources of income will augment
appropriations: mark up of merchandise, sale of recyclable
material, sale of excess property, license fees, royalties, “coop” funding from vendors, fees similar to those found in
retail grocery sector
Early proposal
 Authorized merchandise categories are eliminated – can
sell any merchandise
 Eliminates requirement to purchase from exchanges,
including tobacco (exchanges would lose tobacco profits)
 Can contract out to operate specified store functions (I
read this as concessionaires), but cannot contract out
supervision of stores
 Eliminates DECA Board of Directors – however a Board can
be established to advise senior officials
 Revenue from dishonored check fees and licensing of
AAFES proposal to run
commissaries—March 17, 2015
 Said was prompted by DeCA proposal
 Will cost AAFES $1 billion if commissaries close
 Needs more analysis
 Would result in closure of commissaries and
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destruction of exchanges’ dividends.
Don’t create another NAFI
Serve same customer
Combine DeCA and exchange buying power
AAFES would run commissaries
DepSecDef email—March 26, 2015
 Proposal to OMB makes two significant changes to the
statute by eliminating restrictions on selling goods at
cost and on selling only brand name goods.
 These two changes will provide DeCA with enough
price and product flexibility to generate sufficient
revenue to account for the $200M reduction in FY 2015.
 Further direct CAPE to review other changes to statute
and consider adopting an exchange business model
and other options for consolidation of commissary and
exchange functions.
 In announcing the cuts as part of the budget roll-out,
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Secretary Hagel says that:
DoD needs to cut compensation costs
No commissaries would close
Overseas and remote commissaries would continue to
receive appropriations
Commissaries will operate like PXs and still offer
substantial (stated as 10% in briefing) savings
Would continue to get free rent and pay no taxes
Military in the United States can shop at Target or WalMart
Obama at Pendleton-Aug 7, 2013
Closing commissaries
“Not how a great Nation
should treat it’s military
and military families”
“I don’t think we ought to cut the commissary
budget. ... I think if we want to look at the stress
military families are facing, we need to look at
their activities of daily living and look at this
holistically. ... [The commissary] is one of the
most important tools you have for the health
and well-being of the military and the garrisons
in this country,”
Senator Begich--Alaska
“Increasing commissary costs would be a kick in
the teeth to Alaska’s 10,000 retirees and 65,000
active duty service members and their families.
These costs will do little more than increase outof-pocket costs for them…for DoD to propose
more out-of-pocket costs from service members
and vets is just adding insult to injury.”
Letter to the Chairman, Senate Armed
Services Committee.
Sergeant Major of the USMC
“I personally think it’s
ridiculous that we’re going
after something that saves a
young lance corporal $4,500 a
year.”
Compensation Commission
 Retirement payments expected to double by 2035 to
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$116.9 billion
Om 2017, DoD plans to have 100,000 fewer troops but
spend as much as today on personnel
Army personnel costs grown by 50 percent over last
ten years
Health care costs up $30 billion over last decade
Iraq and Afghanistan health care bubble
80 percent say they would trade retirement policy
changes for a 1 percent increase in pay
Warner/Chambliss bill
“…the monthly amount of funds made available by the
Department of Defense for the defense commissary
system during fiscal year 2015 may not be reduced below
the average monthly amount of funds made available for
that system during fiscal year 2014 until the date
ofthereport of the Military Compensation and
Retirement Modernization Commission…”
Forbes bill
 Randy Forbes of Virginia
 Military Sustainment Act
 Prohibit funding reductions for commissaries in 2015
pending a report of the Military Compensation and
Retirement Modernization Commission.
 “Reducing commissary services is essentially cutting
the pay of those who volunteer to wear this nation’s
uniform and is an unacceptable breach of faith with
our warriors and their families.”
Army Times on Comp Cuts
“Some context: In a $496 billion plan
rife with bloated weapons acquisition
programs, these pay and benefits
proposals would save the $2.1 billion next
year—about 0.4 percent. The Pentagon
loses more than that in its couch
cushions each year.”
Thad Cochran—SAC/D Vice Chm
“I disagree with the notion that closing base
commissaries of raising charges to service
members should be used to cur the budget of
the Department of Defense…punishing those
who have served in the military and who may
be called upon to risk their lives for our
freedom and security it not justified. “
CBS News
“It would directly affect my household
budget,” said Rheanna Bernard, spouse of an
Air Force Tech Sergeant who plans every
meal.” It would cause stress because then
you’re trying to figure our where else you can
cut. You can’t cut out where you live, you can’t
cut out your food, you can’t cut out your heat.”
Military Times
 “If we were forced to shop off post for groceries, I
would have to go from place to place to save money,
and I believe I still wouldn’t save what I do at the
commissary.” Rachel Anderson, Army Staff Sergeant
Spouse
 “Other than health care, the commissary is one of the
most important things that people need to get by,” said
Jes Hogan, Army spouse and motherof four children.
Hogan worries about her grocery bill,--the cost of her
18-month-old baby’s diapers. Discounted prices at the
military grocery store are a lifesaver.”
NBC News
“This is a pay cut, pure and simple,” said
Jeremy Hilton whose wife is an Air Force
officer who deployed to Afghanistan. “Anyone
who tells you otherwise is playing an insidethe-beltway, fuzzy math game that doesn’t
take into account the bottom line for most
military families. It’s going to be painful.”
2014 Congressional Caucus
 June
24
 Rayburn House Office Building
 Members of Congress
 Defense experts
 Pentagon and Administration
Officials
Compensation Commission
Compensation Commission
Compensation Commission
 Included in 2013 NDAA
 “Military Compensation and Retirement
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Modernization Commission”
Ensure long-term viability of all-volunteer force
Enabling high quality of life for military families
Achieving fiscal sustainability of compensation and
retirement systems
Examine all laws and policies affecting various
programs and benefits
Compensation Commission
• Talk of cost-cutting started in 2008—post-9/11 spending
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spree
July 22, 2010 DBB Report “Reducing Overhead and
Improving DoD’s Business Operations”
Spend more on health care and benefits for former military
than on troops in uniform
Personnel costs unsustainable
Cost per person in active force increased 46 percent
75 percent of budget
At current growth rate, personnel costs will consume entire
defense budget by 2039
OK as long as budget rising—now it is colliding
Compensation Commission
 Added by conferees:
“Department of Defense morale, recreation, and welfare
programs, the resale programs (military exchanges and
commissaries) and dependent school system”
“Closely weigh its recommendations regarding the web
of interrelated programs supporting spouses and
families of members of the uniformed services, so that
changes in such programs do not adversely impact
decisions to remain in the uniformed services.”
Compensation Commission
 Nine members & $10 million
 Majority and Minority Leader of House and Senate
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appoint two each within 4 months
All hearings open to public
President to report to Congress within 60 days of
receiving the report
Grandfather benefits to current members
Provides for expedited consideration of
recommendations by Congress
Compensation Commission
 Within 5 months—principles addressing:
 Maintaining recruitment and retention of the best military
personnel
 Modernizing retirement and compensation systems
 Differentiating between reserve and active service
 Ensuring fiscal sustainability
 Within 9 months, SecDef to transmit his
recommendations to the Commission and concurrently to
Congress
 Report within 15 months to the President
 Report delayed until early 2015
Compensation Commission
 Input ongoing
 ALA positioned to input with economic report
and resale research data
President Recommendations
 Current members can choose to switch to
new retirement system but not required
 Ensuring compensation comparable to
outside
 Sufficiently flexible to adjust to economic
conditions
 Generous enough to motivate and retain
 Grandfather
ALA
Mobilizing
Prevention
Pre-emption
Preservation
ALA positions on budget
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System has already cut no more cuts-inherently efficient
Stop irresponsible dialogue with facts—no more new normal
As a vital compensation program, should be exempt from cuts.
For Sequestration, these programs should not be cut
disproportionately beyond the minimum reductions that are
mandated by law.
 Certainly should not be singled out for major reductions or illadvised experimentation or reengineering
 The resale system is inherently efficient with DeCA alone
reducing its annual operating costs nearly $900 million a
year. These programs are part of the solution not part of the
problem as our report “Costs and Benefits of the Military Resale
System” demonstrates—their contribution to the Defense
Department far outweighs their costs by a factor of 6:1.
 This is an earned benefit, not just a store.
 Commissaries are a community hub and bring the military
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together.
Food inflation is expected to double this year.
Would greatly impact DoD’s efforts to promote healthy
lifestyles.
DoD may say the stores will remain open but the practical
effect of the appropriations reductions will be that the
stores in the U.S. will close.
Cutting commissaries is punishing success. These
operations have already cut spending while other Defense
programs continue to increase.
 DoD says that commissaries will not have to pay rent
or taxes under their proposal. Commissaries should
not have to pay rent anyway on stores built and
maintained with patrons funds. The military is
already exempt from taxes under the Supremacy clause
of the Constitution.
 If you shut down the stateside hub stores, the supply
chain will lose economies of scale and prices overseas
will rise as well.
 Commissaries support the Defense mission including
DoD efforts to promote healthy lifestyles.
 The cuts will reduce the current 30 percent savings to zero
and the stores in the U.S. would close.
 Economies of scale would be lost for remaining overseas
stores and costs and prices would rise.
 There are huge unknown consequences such as cascading
impact on military PX operations and on-base community
support programs, loss of U.S. supply infrastructure to
support remote and overseas operations.
 Commissary cuts would demoralize the military at a time
when there is so much uncertainty over the entire
compensation package and force structure cuts.
 Insufficient analysis/study of the consequences of the
reductions
 Congress, at the Administration’s request, established the
Military Compensation and Retirement Modernization
Commission and specifically included commissaries as part
of the review. The Commission was to look at
commissaries in relation to other compensation benefits
and provide recommendations to the Congress. The
commission should be allowed to do its work.
 Commissary is an earned benefit in recognition of service.
 Reductions to the commissary benefit are out of proportion
to the reductions that are shared by other Defense
programs
 Power military household income with$2.8 billion in price
savings and another $250 million in income for family members
who work there.
 Is a cherished and well-used benefit with 90 percent of active
duty families using it last year and over 98 million customer
transactions.
 Large operations in the United States anchor and indirectly
underwrite operations in remote and overseas areas—equalizing
the benefit no matter where our people serve.
 Are a flexible benefit that expands and contracts with the size of
the force structure with nearly 150 of the stores closed
corresponding with successive rounds of BRAC and force
realignment over the years.
 Have a declining budget, with funding for the benefit remaining
stable and dropping in real terms during the Defense budget
ramp-up and even when the number of eligible beneficiaries
increased. Allow the Department to economize on cost-of-living
allowances and personnel and operating costs in other areas such
as direct pay and transportation.
 Commissaries support multiple Administration objectives
including: hiring of Veterans and family members, supporting
military quality of life; providing minority and small business
opportunities; and opportunities for the blind and severely
disabled.
 The Defense Commissary Agency is one of the few organizations
in the Department that has been able to produce a clean
financial statement, a major objective of the DoD.
 Commissary patrons have built billions of dollars in facilities
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with their five percent surcharge
Food inflation is expected to double in the coming year
Represent a partnership between the public and private sector,
taking advantage of a private sector supply chain that contributes
an additonal $500 million a year ancillary support to the military.
Represent a partnership between the beneficiaries and the DoD
with these beneficiaries offsetting nearly 20 percent of the
operating costs.
Provide a tremendous amount of no-cost compensation to the
Department through state and local tax savings for beneficiaries
valued to the Department at nearly $300 million.
 There should be no commissary reductions beyond the
over $700 million a year in annual reductions that have
already been taken out of the commissary budget (includes
the $46 million in the just-passed Omnibus FY 2014
Appropriations Act, and the $500 million inventory savings
from outsourcing distribution.
 Commissaries are one of the few DoD programs that has
held costs constant; in FY92 constant dollars, commissary
appropriations have actually declined since 1992.
 The primary purpose military families use the commissary
is the savings offered, they will stop coming when the
savings go away.
Dynamic environment calls for
energized partnership
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Publicly supported entities usually predictable
This has changed
Manufacturing, distribution, store support
Industry employment
Industry respects agency prerogatives
Stability and predictability key to cost control
Agency decisions reverberate across the chain
Industry can react and support with adequate notice
Advance notice avoids disruption of product flow
Cooperation and communication key in dynamic
environment
 Patron support is mutual bottom line
The case
Compassionate
Economic
National Security Mission
We are part of the solution,
not part of the problem
ALA & Resale
Protecting the Benefit