Combining exchange services a challenge

  • Tom Philpott / Military Update
  • Friday, April 16, 2004 9:00pm
  • Local News

The biggest obstacle to consolidating the three military exchange services will be proving to Congress and skeptical military leaders that the effort will benefit patrons, says the director of a unification task force.

"My most difficult challenge is to produce the empirical evidence that proves what appears to be intuitively obvious," said retired Air Force Maj. Gen. Charles Wax.

His task force is to deliver a plan on exchange consolidation to Congress by early 2005. Various studies have recommended combining the systems, Wax said. Annual projected savings have ranged from $13 million to $206 million.

Previous studies all had weaknesses, Wax said. Indeed, service leaders have yet to be convinced that consolidation is a good idea.

What drives exchange consolidation for now is a May 8, 2003, memo to the services from Paul Wolfowitz, deputy defense secretary.

"I have decided," he wrote, "that a single optimized armed service exchange system would best serve the department and exchange patrons."

About 30 percent of exchange profits are used to staff, maintain and modernize stores. Seventy percent goes to the services as dividends to fund their morale, welfare and recreation programs.

If consolidation can cut costs, Wax said, military people will gain. The extra dollars would be used to lower prices, improve store operations and increase the dividend, all of which would benefit patrons.

The three exchange services — AAFES, the Navy Exchange Service and Marine Corps Exchange — 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 stores to 15.8 percent at Navy Exchange stores.

After months of work by 10 task force teams made up of officials from the exchange services, Navy and Marine exchange commanders criticized the consolidation process in congressional testimony in March.

Rear Adm. William Maguire, days before retiring as Navy Exchange Service commander, said he still had not seen a "sound business case" to support integration.

In response to such complaints, Wax last week ordered all task force teams to "take a strategic pause."

If task force analyses can show real savings, Wax said, opposition to consolidation will ease.

"Just for discussion, let’s say the number comes out to be $100 million" in savings annually, he said. "Then the question would be, ‘Who in the room does not want to save soldiers, sailors, airmen and Marines $100 million this year and every year thereafter?"

Timothy Laseter, a professor at the Darden School of Business Administration at the University of Virginia who is under contract to the task force, has written a six-page article arguing for consolidation.

"It is the customers who really should be marching outside my office, picketing as to why we are not moving faster to get this accomplished," Wax said. At stake is "money generated by the individual two-striper who puts his dollar on the point of sales. He is paying for everything in those exchanges, including duplicating processes."

Comments are welcomed. Write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111, e-mail milupdate@aol.com or go to www.militaryupdate.com.

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