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
Slide 3
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
Slide 4
This is no drill ALA prepared
Slide 5
Slide 6
Revolution is what happens after the change already has taken
place.
Slide 7
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
Slide 8
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
Slide 9
System is strong but fragile and vulnerable Convergence of
factors all at once could destroy it
Slide 10
The law will protect us!!
Slide 11
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
Slide 12
FY 2015 Defense Authorization
Slide 13
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)
Slide 14
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.
Slide 15
Full CommitteeMay 6th $100 million reduction? Part of
reconciliation of entire HASC bill.
Slide 16
Implications/Spin-offs of Commissary Proposal Proposal dies
outrightno legislative changesoffset reductions Commercial grocers
pounce Exchanges sell food Compromise solution
Slide 17
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
Slide 18
Exchange product assortment Servicemen and women are entitled
to the same privileges and product access as the citizens they
defend
Slide 19
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.
Slide 20
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
Slide 21
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
Slide 22
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
Slide 23
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.
Slide 24
Slide 25
Slide 26
Slide 27
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
Slide 28
Slide 29
Slide 30
Obama at Pendleton-Aug 7, 2013 Closing commissaries Not how a
great Nation should treat its military and military families
Slide 31
Slide 32
Slide 33
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Slide 39
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,
Slide 40
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.
Slide 41
Slide 42
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.
Slide 43
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
Slide 44
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
Slide 45
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.
Slide 46
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.
Slide 47
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.
Slide 48
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.
Slide 49
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.
Slide 50
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.
Slide 51
2014 Congressional Caucus June 24 Rayburn House Office Building
Members of Congress Defense experts Pentagon and Administration
Officials
Slide 52
Compensation Commission
Slide 53
Slide 54
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
Slide 55
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
Slide 56
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.
Slide 57
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
Slide 58
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
Slide 59
Compensation Commission Input ongoing ALA positioned to input
with economic report and resale research data
Slide 60
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
Slide 61
ALA Mobilizing
Slide 62
Prevention Pre-emption Preservation
Slide 63
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.
Slide 64
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.
Slide 65
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.
Slide 66
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.
Slide 67
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
Slide 68
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.
Slide 69
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.
Slide 70
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.
Slide 71
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.
Slide 72
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
Slide 73
Slide 74
The case Compassionate Economic National Security Mission
Slide 75
We are part of the solution, not part of the problem