Deputy Defense Secretary Patrick M. Shanahan has directed that a task force be formed by July 1 to develop a business case for consolidating the military’s three separate exchange services, and the Defense Commissary Agency, into a single resale enterprise to oversee and streamline all on-base store operations.

In a May 29 memorandum to the department’s Chief Management Officer John H. Gibson II, as well as to the service secretaries, the chairman of the Joint Chiefs of Staff and other top defense executives, Shanahan said he recognizes the planned merger can’t happen without the approval of Congress.

Gibson is to name a task force director by June 15.

Shanahan noted that military resale has been studied “repeatedly since 1990 with little or no implementation of recommendations for change.” Consequently, on-base stores are “experiencing many of the same industry, generational and demographic trends negatively impacting private-sector grocers and retailers.”

Some exchange service executives have argued against consolidation. 

“I considered the respective views and responses of the Military Departments on this approach,” Shanahan said, and decided “a single consolidated organization offers the greatest potential to achieve the economies and efficiencies necessary for the survivability of the defense resale enterprise and the continued availability of these benefits to our Total Force, their families and other authorized patrons.”

Whether Congress grants the department authority to consolidate resale operations, Shanahan also wants the task force to “begin standardizing and optimizing” at least all store systems and processes, “beginning with supply chain and procurement as soon as practicable.”

To sharpen focus on these efforts, Shanahan said, he is ordering a freeze, effective immediately, on resale executive hiring and on acquisition of new information technology to support store operations. In a nod to service concerns, the deputy secretary said task force plans for consolidation should consider “retaining service-unique identities on the front end of resale activities.”

Once complete, Shanahan said, if the business case doesn’t persuade Gibson on the merits of consolidation, “the task force will be disestablished immediately and the reform initiative closed.”

“The Department should make it clear to all,” he closed, “that our intentions are to make [base] services better for our members and their families, to improve our support to commanders, to be exceptional stewards of our appropriated funds, and to exhibit fiduciary responsibility of our non-appropriated funds.”

By Tom Philpott