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Editorial Comment — January 2019

Concurring Dissents …

Much has changed concerning consolidation of military resale agencies since last August, when the 2019 NDAA was signed into law. The new law required a report to Congress regarding the already-underway study of the feasibility of resale consolidation, a study that had been set in motion by a May 2018 memo from Patrick Shanahan, deputy secretary of Defense at the time, directing the chief management officer (CMO) to have a task force prepare a business case analysis (BCA). The guard has since changed; Lisa Hershman is now acting CMO and Shanahan has moved up to become acting Defense Secretary.

Leaders of the BCA effort insist there was no predetermined outcome, yet Shanahan’s memo itself states that “a single consolidated organization offers the greatest potential to achieve the economies and efficiencies necessary for the survivability of the defense resale enterprise ….”

Surprisingly, when the task force completed its BCA, with the substantial assistance of the Boston Consulting Group (BCG), that was exactly what its conclusions supported. No alternatives were recommended.

Disagreement regarding its viability surfaced when the BCA reached the military secretaries’ offices during the holiday season, and it was not until after New Year’s Day that dissenters were “persuaded,” after “additional review,” to revise their opinions.

Even in watered-down verbiage, the secretaries are roughly in agreement that the BCA’s version of consolidation will cost more, save less and take considerably longer than contemplated in the study.

Though the Army and Air Force “concurrences” were signed off on by Army Secretary Mark Esper and Air Force Secretary Heather Wilson themselves, the Navy’s was left to Undersecretary Thomas Modly.

Modly, a Naval Academy graduate with an MBA from Harvard, spent three years in the George W. Bush administration as deputy undersecretary of Defense for Financial Management, followed by 10 years with PricewaterhouseCoopers (PwC). At PwC, he was managing director of the firm’s National Security Practice, with particular expertise in defense business transformation.

In early December, the Navy’s original assessment was that the BCA was “flawed beyond repair.” Word in the marketplace at the time was that KPMG had also found flaws in the analysis.

After a month’s reflection, however, Modly signed off with a “concurrence” that taken together with its attachments seems to read, as does Esper’s, more like a dissent than an agreement.

According to sources, the final Navy assessment, while questioning the accuracy of the BCA, offers the opinion that the current resale system could save just as much, quicker and more economically, by cooperating as separate entities instead of being consolidated.

One of several sticking points against supporting consolidation efforts appears to be the inclusion of the Defense Commissary Agency in the mix.

Though the Securities and Exchange Commission might insist that prospectuses always remind us that “past performance is no guarantee of future results,” DeCA’s dismal results as an example of BCG’s past performance should certainly be a red flag for anyone intending to invest the time and effort, let alone taxpayer funds, needed to bring about the massive undertaking contemplated in consolidating military resale.

Following BCG’s playbook, commissary shelves often remain frustratingly empty … and though groundlevel operators struggle to maintain some semblance of “benefit as usual,” there are glib assurances up the ladder that everything is on track.

DeCA’s sales have continued to slide for the past 47 consecutive months. Unit volume is down roughly 425 million units from fiscal year 2015, when the BCG “transformation” study of DeCA was completed, through the end of calendar 2018 — a loss of more than onefifth of the agency’s business.

Is this really the path the Pentagon wants its resale “enterprise” to go down?

Acting CMO Hershman, who will sign off yea or nay on the BCA, is on record as wanting to hear from customers and other stakeholders. We encourage her to meet directly with several groups who seem to have been ignored, snubbed, possibly even muzzled.

If she hasn’t already, she could perhaps begin with those upon whom the success or failure of the entire enterprise, whatever form it eventually takes, will almost entirely depend: the patrons, who have to this point it seems been left out of the process.

She should invite the resale agency CEOs, collectively or one on one, to see and hear face-to-face their perspectives regarding their currently successful operations and observe the passion they devote to their roles in providing the resale benefit.

She should also meet with brokers, both large and small, who possess many years, sometimes generations, of hard-won experience as well as volumes of data and detail about best practices crafted specifically to meet the unique requirements and restrictions of this peculiar non-commercial market.

Perhaps if they were considered consultants, rather than brokers, such a meeting might be taken more to heart. As consultants, they would have the great advantage that at least they, unlike many consultants, are very familiar with the specific market and the situation in abundant detail, though from the other side of the fence. Reportedly dismissed for “self-interest,” it should be noted that in general, their self-interest aligns with that of the resale agencies … or agency.

The 2019 NDAA does not indicate what Congress intends to do with the Pentagon report on resale consolidation. But between the moment that it arrives on Capitol Hill and Oct. 1, 2019 — when the law’s prohibition against spending any money to begin consolidating the resale entities is lifted — there is enough time for legislators to act. But the matter is urgent, and they must act quickly.

Newly named Military Personnel Subcommittee Chair Jackie Speier and Ranking Member Trent Kelly should ask the Government Accountability Office to thoroughly review the full 304-page business case analysis, examining its data and methodology, drilling down to test its accuracy, especially in light of numerous apparent faults and discrepancies cited in the “concurrences” included with the report.

That would be a small price to pay before spending hundreds of millions of dollars to dismantle a highly regarded benefit and subjecting it to irreversible change.

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