November 22, 2013

Commissary CEO shares sequestration consequences

Offering a glimpse at what commissary and military exchange services could become in light of smaller and unpredictable budgets, the Defense Commissary Agency director and CEO described to Congress Nov. 21 the consequences sequestration and the government shutdown have already imposed.

Customers packed commissaries Oct. 1, the first day of the government shutdown, Joseph H. Jeu told the House Armed Service Committee’s Military Personnel Subcommittee.

Not knowing what was ahead, shoppers stocked up on food and supplies, racking up twice the typical day’s sales, at $30.5 million.

“That was our highest sale day ever,” Jeu told the House panel.

But as the furlough dragged on, its effects increasingly became evident.

The department-wide hiring freeze had already put a dent in the customer service that been the pride of the Defense Commissary Agency. Because turnover tends to be high among the commissaries’ lower-grade employees, manning levels quickly dropped, Jeu explained. Two-thirds of all commissaries fell below the manning levels required to run the stores effectively.

Even when DOD gave some relief and authorized personnel hiring, the results came slowly due to time lags in employee vetting.

Exacerbating the situation, civilian furloughs forced most commissaries to close one day a week for six weeks.

“Customer complaints rose by over 50 percent and hit an all-time high during the furlough,” Jeu reported. “While our employees struggled to provide our goal of excellent customer service, they could not always overcome the challenges.”

Customers were often confronted with long checkout lines, closed registers and empty shelves, he said. Sometimes waits for checkouts dragged on for 20 to 30 minutes.

Meanwhile, sales figures that had been on an upward trajectory dropped. “Commissaries experienced a sales loss totally over $99 million driven by sequestration closures in fiscal year 2013 and government shutdown closures in October of fiscal year 2014,” Jeu reported.

Distributors who supply the commissaries felt the impact, too, he said. They faced sporadic delays in offloading their deliveries, and orders were frequently held up or delayed. In some cases, the wrong products were shipped, damages weren’t processed in a timely manner, and orders were delayed due to closures that made scheduling a logistical nightmare.

All this followed what Jue told the congressional panel had been “an impressive year” in fiscal 2012, before sequestration.

“Sales were up, topping the $6 billion level for the first time since 1992,” he reported. The cost of delivering commissary services came in under budget. Customer satisfaction surveys that were independently verified ranked commissaries above all but one commercial grocery chain.

“The commissary continues to be one of the most valued non-pay compensation benefits our military members, past and present, and their families enjoy,” Jeu said. Calling the commissary benefit an “integral element of the total compensation package,” he said it saves patrons about 30 percent compared to commercial supermarkets.

That equates to about $1,500 a year for a single service member who consistently uses the commissary and as much as $4,500 for an average family of four, he said.

This quality-of-life enhancement comes at a rate of $2 in patron savings for every taxpayer dollar invested, Jue reported.

“However, this two-for-one return on investment is insufficient to shield the commissary from scrutiny as it faces the same fiscal challenges as other government agencies,” he lamented.

Jue noted the Defense Commissary Agency’s “proven history of taking cost out of the system,” and progress in reducing operating costs and overhead and introducing efficiencies and innovation. Warehouses and associated inventory has been eliminated, manpower has been reduced, accounting functions have been centralized and automated and headquarters and regional offices consolidated.

“Over the past 20 years, we have picked the long-hanging fruit by seeking innovative initiatives to achieve operating efficiencies, and through good stewardship of taxpayer dollars, we made the commissary system significantly less costly to operate,” Jeu said. “With this history, any further reduction resulting from sequestration will diminish the commissary benefit.”

Even with commissaries to receive full funding in the proposed fiscal 2014 budget, Jeu warned that the impact of sequestration “is likely to be considerable” as the department establishes priorities and balances resources.

“Even with the budget uncertainty due to sequestration, as we move into this net era, the (Defense Commissary Agency) is excited about its ongoing initiatives to seek innovative and efficient methods of benefit delivery,” he said.

Jue testified yesterday with other senior defense officials who urged Congress to preserve military exchange and commissary services they call key to the morale and quality of life of service members and their families.

Joining him in the House chamber were Rosemary Williams, deputy assistant secretary of defense for Military Community and Family Policy; retired Navy Rear Adm. Robert Bianchi, CEO of Navy Exchange Service Command; Thomas Shull, director and CEO of the Army and Air Force Exchange Service; William Dillon, director of the Marine Corps Semper Fit and Exchange Services; Thomas Gordy, president of the Armed Forces Marketing Council; and Patrick Nixon, president of the American Logistics Association.

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