American Logistics Association Logistics is our middle name Manufacturers, Distributors and Brokers...

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

Outreachdont lobby ourselves 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 outreachmilitary 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 Dont just chip away at existing structures and practices butfashion entirely new ones that better reflect 21 st 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 markMay 6 th No cuts in subcommitteemaybe in full committee SASC Subcommittee marksPersonnel May 21, other May 20 Full committee May 21 JCS testimony to SASCMay 6 Compensation Commission Report February 15, 2015 HASC-mandated reportFebruary 1, 2015 Appropriations Bills TBD

FY 2015 Defense Authorization

HASC Bill Language Requires review by independent firm experienced in 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 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 CommitteeMay 6th $100 million reduction? Part of reconciliation of entire HASC bill.

Implications/Spin-offs of Commissary Proposal Proposal dies outrightno legislative changesoffset reductions Commercial grocers pounce Exchanges sell food Compromise solution

Convergence of exchange challenges SDT and base operations funding Product and pricing restrictionstobacco (CVS), 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-ODay 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 -$1,000Mactual 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, co- op 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

AAFES proposal to run commissariesMarch 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 destruction of exchanges dividends. Dont create another NAFI Serve same customer Combine DeCA and exchange buying power AAFES would run commissaries

DepSecDef emailMarch 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, 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 Wal- Mart

Obama at Pendleton-Aug 7, 2013 Closing commissaries Not how a great Nation should treat its military and military families

I dont 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 Alaskas 10,000 retirees and 65,000 active duty service members and their families. These costs will do little more than increase out- of-pocket costs for themfor 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 its ridiculous that were going after something that saves a young lance corporal $4,500 a year.

Compensation Commission Retirement payments expected to double by 2035 to $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 nations 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 yearabout 0.4 percent. The Pentagon loses more than that in its couch cushions each year.

Thad CochranSAC/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 Defensepunishing 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 youre trying to figure our where else you can cut. You cant cut out where you live, you cant cut out your food, you cant 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 wouldnt 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 babys 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 inside- the-beltway, fuzzy math game that doesnt take into account the bottom line for most military families. Its going to be painful.

2014 Congressional Caucus June 24 Rayburn House Office Building Members of Congress Defense experts Pentagon and Administration Officials

Compensation Commission

Included in 2013 NDAA Military Compensation and Retirement 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 2008post-9/11 spending spree July 22, 2010 DBB Report Reducing Overhead and Improving DoDs 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 risingnow 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 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 monthsprinciples 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 System has already cut no more cuts-inherently efficient Stop irresponsible dialogue with factsno 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 ill- advised 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 demonstratestheir 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 together. Food inflation is expected to double this year. Would greatly impact DoDs 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 Administrations 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 areasequalizing 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 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 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

American Logistics Association Logistics is our middle name Manufacturers, Distributors and Brokers...

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