MILITARY UPDATE
Proof of savings key to merging exchanges
By Tom Philpott
The biggest obstacle to consolidating the three military exchange services into a single system will be proving to Congress and skeptical service leaders that the effort will save money for patrons, says retired Air Force Maj. Gen. Charles J. Wax, director of the Unified Exchange Task Force.
"My most difficult challenge is to produce the empirical evidence that proves what appears to be intuitively obvious," that moving to a single exchange service will eliminate "redundant overhead and duplication of processes" and, in turn, raise profits, Wax said.
The task force is to deliver a plan on exchange consolidation to Congress by late January 2005. Various studies over the past 30 years have recommended combining the three exchange systems, Wax said. Annual projected savings have ranged from $13 million to $206 million.
Will actual savings be closer to the smaller or larger figure?
"I would like to be able to say definitively one way or the other," said Wax. "I cannot."
Previous studies all had weaknesses, he said. Service leaders have yet to be convinced consolidation is a good idea.
"They are asking the same kinds of questions you are: 'How many people (impacted)? How many dollars (saved)? And that level of analysis is not yet complete."
What is driving the move for consolidation now is a May 8, 2003, memo from Deputy Defense Secretary Paul Wolfowitz.
"I have decided," he wrote, "that a single optimized Armed Service exchange system would best serve the department and exchange patrons."
Wolfowitz directed Charles Abell, principal deputy undersecretary of defense for personnel, to oversee the effort. Abell, in turn, formed the task force to develop an integration plan. He made Wax, former commander of the Army and Air Force Exchange Service, task force director.
About 30 percent of exchange profits are used to staff, maintain and modernize stores. Seventy percent goes to the services as "dividends" to finance their morale, welfare and recreation programs.
If consolidation can cut costs, Wax said, military people gain. The extra dollars would be used to lower prices, improve store operations and increase the MWR dividend, all of which would benefit patrons and allow exchanges to compete more effectively with off-base retailers like Wal-Mart.
The three exchange services, AAFES, the Navy Exchange Service (NEX) and Marine Corps Exchange (MCX) have combined worldwide sales of $10.5 billion. Average savings to patrons on a market basket of goods range from 21.9 percent at AAFES to 15.8 percent in Navy-run stores.
Navy and Marine exchange commanders criticized the consolidation process in congressional testimony last month.
Rear Adm. William Maguire, days before retiring as NEX commander, said he still had not seen a "sound business case" to support consolidation.
Retired Brig. Gen. Michael P. Downs, director of Personnel and Family Readiness Division at U.S. Marine Corps Headquarters, said the task force only provided cover for a pre-ordained consolidation plan.
Questions, comments and suggestions are welcomed. Write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111, or send e-mail to: milupdate@aol.com. Or visit Tom Philpott's Web site.
