peter levine, department of defense deputy chief … · tion, the office of the dcmo is reviewing...

By PHIL GRAYMANAGING EDITOR

Leading the business, financial, infrastructure, supply chain and acquisition management re-form and optimization of what was described in

his Congressional confirmation hearings as “quite possibly the largest, most complex single organi-zation in the world,” is Department of Defense (DoD) Deputy Chief Management Officer (DCMO) Peter Levine.

Despite the enormity of Senate Armed Services Committee (SASC) Chairman John McCain’s laundry list of challenges that Levine answered the bell to address, the Defense Commissary Agency (DeCA) and military resale have found themselves among the first — if not the first — candidates for reform on the DCMO’s “efficiencies” agenda, and this despite 11 clean financial audits of DeCA. So E and C News visited the Pentagon in December to talk with Levine — a former long-time senior SASC staffer — about the challenges and possible changes that he and the then-evolving Defense Resale Busi-ness Optimization Board (DRBOB) believe need to be reviewed or reshaped to improve and preserve the military’s commissary and exchange benefits.

E and C News: Thank you for inviting us here and giving us some of your time.

Peter Levine: No problem. The commissary effort is an important one to us.

E and C News: Good, glad to hear. Before we proceed further, there are a couple of things we need to ask to set the frame. Has the Defense Resale Business Optimiza-tion Board (DRBOB) been chartered?

Levine: It has not been char-tered. There’s already been a meeting, but it has not yet been chartered.

E and C News: Is there any particular hangup or...?

Levine: We are working through the details of the charter within the department. It will be chartered. We are just working through the details of it.

E and C News: When it is, is there a way that we can get a copy of the charter?

Levine: It will become a public document.

E and C News: Great. Has it been determined who serves on the DRBOB, and are you the chair? What is your relationship to the board in terms of resale reform?

Levine: The easy question is my role on the board. The final determination of membership is one of the things we are work-ing on through the department. I anticipate that the DCMO or his designee will be the initial chair of the board, but again, this isn’t yet final. I don’t think we intend to fix it for all time — member-ship and leadership may change over time as the board evolves.

Let me talk about our effort on commissaries more generally, to fit into what my role is.

The past couple of years, the department has had legislative proposals on commissaries. They have not been well-received in the community or on the Hill, because

they have been perceived largely as budget-driven bills that were going to drive a reduction of the benefit.

I was on Capitol Hill for a fair amount of that time and was well aware of that reception, and … brought that message over with me, but it had been received here.

The department is taking a different approach to it this year, with looking at retaining the benefit and starting with the idea that we want to keep the benefit fixed, but what we want to do is to get what-ever flexibility we can, to achieve that same benefit in the most efficient way possible, so we would have the same benefit to patrons … but if we can achieve it more efficiently, we can reduce the cost to the department.

Because of the fact that we’re now saying that we’re going to hold the benefit constant, and that that’s the priority, we’re now looking at business efficiencies as such. So we no longer view this as a benefits issue; we view it more as a business ef-ficiency situation.

For that reason, I have been leading the effort as the DCMO. It’s sort of been moved over … and obviously I’m working with Personnel and Readiness (P&R). We’re very closely aligned with P&R, we’re in agreement — but it’s the alignment of the effort now, as a business efficiencies effort, and not part of a compensation review, that brings it over my way, because we don’t view this as a compensation issue. The intent, the legislation that we are drafting, the program that we are working on, is to preserve the benefit without any reduction, but to work in terms of delivering that benefit more efficiently.

E and C News: There have been various preliminary formative DRBOB workshops or meetings. How are they working out? In what direction are they headed?

Levine

Although it has rejected resale consolida-tion, the office of the DCMO is reviewing military resale through the lens of efficiencies, rather than as part of a compensation review. Shoppers at the Fort Lee, Va., Commissary.

Peter Levine, Department of Defense Deputy Chief Management Officer

‘Preserving the Benefit Without Any Reduction … Delivering the

Benefit More Efficiently’

EXCHANGE and COMMISSARY NEWS14 | JANUARY 2016

Department of Defense DCMO

E and C News: In setting resale reform in motion, the 2016 NDAA charges DoD with maintaining “high levels of customer satisfac-tion” and “sustainment of discount savings to eligible beneficiaries,” but it doesn’t say that DoD cannot develop or review other plans than those specifically noted in the law itself. Would your office consider or even solicit pro-posals from other outside experts who might have ideas that look outside the box on how to preserve the benefit and maintain savings? As the law seems to focus primarily on the commissary system, does your office solicit or consider input from former commissary directors, such as Gen. Richard Beale, Rick Page, Tom Milks, Phil Sakowitz …

Levine: It’s not, in the first instance, my office; this is what we are charging DRBOB to do. We expect them to go through and analyze and assess each of the recommendations of the MCRMC and the BCG. We expect them to go outside the box and look at other potential recommendations, other ideas that are floating out there. I believe they are well aware of who the experts are in their field and are plugged into them. But that is something that they will be dealing with, and I think, as I say, Joseph Jeu, the commissary director, they are well plugged into these communities.

I think they are aware of the ideas that are out there, and what we expect them to do is to take any of these ideas — not to accept them, not to accept that here is how much they are going to save; that here’s what you should do — but to analyze them, figure out which ones they think will work and de-velop business cases to implement.

E and C News: Looking at the impact on the benefit, it’s much more than just commis-saries. It’s MWR, exchanges, — and since exchanges are almost self sustaining in and of themselves, give or take SDT funding and some other appropriated funding — is con-sideration being given to the lost opportunity costs, the resources that they expend as it seems in being held partly accountable for solving what’s essentially a DoD/commissary appropriated funding efficiency problem?

Levine: We are aware that the business model of the exchanges is linked to the business model of the commissaries, that the exchanges believe that there is foot traffic that goes to the commissaries that benefits them, too. In some cases, at some bases they are side by side, have common malls, so that links them as well.

We think that there are benefits to both com-missaries and exchanges from common business systems. But this is what we want them, as business professionals, to assess. So, if we are talking about a common business system, for example, a common back office practice, like an inventory system or a management system or an online sales system, or a financial system of some kind, they need to look at that. They need to determine what the business case is.

Our belief — and it is only a belief at this stage because we haven’t done the analysis — is that there are opportunities, and BCG and MCRMC said there

Levine: Once we had the Military Compensa-tion and Retirement Modernization Commission (MCRMC) report and the recommendations of the MCRMC report, we had a series of workshops to identify the way forward. Those workshops have basi-cally concluded. We have identified a way forward. The people who are participating in the workshops now will largely be the membership of the DRBOB. That is why I said the DRBOB has been meeting and is now on the “implementation” agenda rather than a “shape the approach” agenda.

We have determined what our approach is, so we looked at the MCRMC report, we looked at the Boston Consulting Group (BCG) recommendations; we think they provide us a viable path forward to achieve business efficiencies and reduce the cost of the commissaries without reducing the benefit.

We accept that most of the recommendations provide a sound path forward. What we don’t accept is, and we have spent a fair amount of time talking about and working on, is the idea of a merger, or a consolidation. We don’t think a consolidation is necessary to achieve the benefits that the MCRMC and the BCG report recommended.

The way I’ve characterized that is that we al-ready have a common owner of the commissary and exchanges because they are all DoD entities. For that reason, we are able to have them work together and to drive change and to drive common processes, without merging them. So, we can have them retain their existing identities, their existing membership; provide their existing leadership as separate enti-ties, but at the same time develop common business systems and common business practices.

It’s something that we have worked to drive through the department. In other areas of the de-partment where we have military services and we identify common problems, defense agencies identify common problems — and we get them to work to-gether and address those problems. We think we can do the same thing with commissaries and exchanges.

The DRBOB is a mechanism to do that, but this is sort of the outcome of the working groups. We have worked through this, how, as a matter of process,

are we going to go about doing this. We determined that we didn’t need the merger, but we would have this common board to drive these common busi-ness practices.

E and C News: Are the resale entities all working together, did they come to consen-sus? Do all the directors and leaders attend?

Levine: The DRBOB membership includes the leaders of all the commissaries and exchanges of all of the resale entities. They do come together, they work together; we expect them to work together to drive common solutions, as I said, on issues of common importance, like the business systems that we want to have, there may be inventory systems, there may be warehouses, there may be practices that cross over from one to the other where we can achieve efficiencies. We will look at all of those issues.

E and C News: The thrust of the effort so far on DRBOB has been coming up with plans in the next 80 or 90 days for reforms to take place in the next few years. Is any attention being paid to what seems to be a slippage in patronage and sales currently occurring in commissaries?

Levine: We’re aware of the slippage in sales. We think we have some idea at what the reason is for the slippage in sales. We have a downsizing of the military, we have a change in the way that these grocery markets work in general, we have new competition, we have all sorts of things like that.

We think that in order to maintain the viability of the commissary system, we need to become more efficient, we need to become more commercial, we need to have our commissaries look more like grocery stores that have better visual presentations, all kinds of things like that. We need to look at the business base and see if there are ways we can reinforce the business base. So we will be looking at all of those things, yes.

DCMO Peter Levine (fourth from left) attended a military resale gathering last fall flanked by two former De-fense Commissary Agency heads, Phil Sakowitz (third from left) and Rick Page (right), along with key DCMO staff members Kent Werner (left) and

Capt. Eric Bach, USN.



are opportunities, where there could be savings for everybody in that you only field one system, for example, instead of fielding three systems. There seem to be some cases where there are multiple investments going on for similar kinds of systems where we ought to have an investment for one system.

One of the problems that we will have to deal with is even if we identify that, “Yes, we need to go forward with one system,” then the question is “Which one?” If it is one being developed by one of the resale services or agencies, how do you make sure that the benefits and the costs are distributed appropriately? — because maybe you are telling another exchange, “Don’t spend anything on yours,” so they save lots of money because they aren’t spend-ing anything on theirs, but one service or agency has to spend more for development.

We need to make sure that costs and benefits are shared across the system in an appropriate manner. But this is a reason why we have them in the room working together, so that they can develop the busi-ness case together, and then reach agreement as to what the benefits are, what the costs are, and how we distribute them so that if we achieve an efficiency for the system as a whole, everybody can recognize the benefit of that.

E and C News: Presumably, they have to go back to the Army, Navy, Marine Corps … ?

Levine: Sure they do. They’ve done this before. If you look at the online sales systems, I believe they have mechanisms that share some of the benefits from sales, and certainly, if they go to the Veterans online, which they are looking at, they are going to have to have a mechanism to share some of those benefits.

So those are kind of problems that because of their linked businesses with overlapping customer bases, they’re going to have to look at and they’re going to have to think about, even without us adding to the list of items that they should look at.

E and C News: Is the sale of beer and wine in commissaries still under consideration?

Levine: I think the issue of putting beer and wine into the authorized sales list of what the commissaries can sell is probably not in the cards right now; but there is another variation on that that could benefit both the commissaries and exchanges and which deserves analysis, and that is, letting the exchanges sell beer and wine in the commissaries, much as we now do with cigarettes.

That, then, doesn’t change over the authority, so it doesn’t mean that the exchanges have to give up part of their business base; but it could expand the universe of sales for everybody in the game.

One of the things we need to look at is what do we do to ensure that we build the business base over the years, and we just don’t live with a shrinking

business base. If you had the exchanges sell beer and wine in the commissaries they would retain owner-ship of that market, but it could expand the market for everybody if you had additional locations. And there would be a benefit, again, that you could share between the entities to benefit everybody.

We know they do it with cigarettes, so it’s some-thing that can be worked through.

E and C News: To gain efficiencies in all of these areas, would DeCA have to be converted into a NAF instrumentality?

Levine: We believe that to have common busi-ness practices, you have to convert DeCA to a NAF, because you can’t have common accounting systems, you can’t have common business practices, when each entity is working under a completely different set of rules.

E and C News: Color of money issues?

Levine: Color of money issues; you have trouble mixing money, you have trouble tracking money, the rules are different, it’s too hard to do.

So, yes, we do think that we need to convert to NAF. As we do that, we recognize that we have to protect employees and assure them that individual employees aren’t going to be forced to transition, and we’re not going to cut anyone’s salary as a result of it; that kind of thing.

E and C News: I think you’ve covered the next question: would the budget reduction achieved by DeCA in partnering with the exchange systems in back-office systems …?

Levine: Yes, so the answer is, the whole predicate is, as we achieve savings, we can reduce appropria-tions. We will not do it on the basis of “we’ve decided that we are going to reduce by $300 million by 2016, so therefore, the $300 million is go-ing to go away whether we achieve those savings or not.” It will be the other way around. We will reduce the appropriation as we achieve the savings.

E and C News: That’s a major distinction.

Levine: Yes.

Levine emphasized that dur-ing the past couple of years, the Department of Defense has had legislative proposals on commissaries that have not been well-received in the community or on the Hill, and it is aiming for a differ-ent approach in 2016 that emphasizes common busi-ness systems and practices, synergies and “efficiencies.”

E and C News: If the $300 million is thought to be a level that doesn’t break the savings equation or jeopardize the existence of the benefit, is there a sense of how that $300 million would likely break out in terms of back-office efficiencies?

Levine: The best that we have right now are the breakouts that MCRMC and BCG gave us. They gave us estimates for each of their initiatives, and most of the initiatives are ones that we are going to look at, but we don’t know if their estimates are reliable. When we go to actually implement, we are going to look at each one with a separate business case analysis, a separate assessment, and we may decide that some of them don’t have a payback at all, we may decide that some of them have a payback but the savings are different than what they were estimated to be.

So that is our starting point for looking at them, but it is not our endpoint. … I mean, we can’t actu-ally calculate savings on the basis of that. We have to do our own study and analysis.

E and C News: And presumably all the mem-bership of DRBOB will be actively involved in really sinking their teeth into that?

Levine: They are the ones we expect to do this work, yes, absolutely.

JANUARY 2016 | 17EXCHANGE and COMMISSARY NEWS

‘The intent, the legislation that we are drafting, the program that we are working on, is to preserve the benefit without any reduction,

but to work in terms of delivering that benefit more efficiently.’—Peter Levine, Department of Defense Deputy Chief Management Officer

works, and build that in. That’s what grocery stores do. If we do that, we think that we can drive sav-ings from that.

I think BCG indicates that we can drive savings from that, so yes, I think there will be a different mix of products that will be available. Not just because of having store brands, but also because of driving the supply chain in a way much more similar to the way private industry drives the supply chain.

There are studies that show that there are some goods that you need to have, and BCG has talked about that, there are some goods that you need to have all the products available. You can’t have Coke and not have Pepsi, for example, because there are some people who will only buy Coke and some people will only buy Pepsi. But there are lots of other products where that distinction is not made and you can achieve a significant economy by com-peting your suppliers against each other and going with the best deal.

We’re going to be looking at all sorts of things that take place in the private sector, that in the com-missaries, under the current business model, don’t matter — because you slap whatever you have on the shelf and put a 5-percent surcharge on it, and that is what your price is. But if you are trying to drive efficiency and trying to get the lowest price, that’s not the way you run your business. At least that’s not the way the private sector runs their business.

E and C News: Where do second destination transportation (SDT) costs fit into this?

Levine: The same principle, which is that as we reduce cost, we can reduce the appropriation. We just don’t want to take away the appropriation and say that the customer suffers, but to the extent that we can do something and develop a more efficient model, so that we don’t need the subsidy, then we can reduce the appropriation.

E and C News: We understand that quite a bit of energy is being devoted to developing possible DeCA private label offerings on com-missary shelves. With a focus right now on contracting aspects rather than marketing, how much will it cost for DeCA to accom-plish this?

Levine: I don’t know how much it will cost, but the important thing is that we need something to change, and we got the authority from Congress already, at least on a pilot basis. But we need to have flexible pricing authority before the private label stuff does us any good. That is why we are in the stage of studying rather than the stage of implementing.

Congress, in the FY 2016 NDAA, gave us pric-ing flexibility, and they gave it to us more or less in the form that we’ve been suggesting we want to use it. The model is, develop a baseline for what the savings to patrons is today, through a market basket type of approach, and once you use that baseline, you can vary prices, but you have to measure what the impact of your prices is to your customers by using the same methodology that you use to estab-lish the baseline, and show that the savings come out the same.

If you have a market basket which is developed through whatever the current science of this is, and there are lots of people who study this stuff, and they’ll dispute it, but we will come up with a meth-odology, we will come up with a way of measuring a market basket which will be balanced, however they balance it so that they think it is representative. And we will come up with a savings rate — as a result of that process — that the typical patron is going to save, and it will be somewhere between what BCG says and what DeCA says.

Say it’s 20, 21, or 22 percent or whatever the number is, we are going to then implement flexible pricing, so some prices may go up, some prices may go down. We may bring in generics or store brands, those kinds of things, but when we have done all of that on a regular basis, we’re then going to use the same market basket approach to measure what the savings are to customers.

So again, you take that same market basket you were measuring against your private sector competi-

tors before, and you came up with 21 or 22 percent, now we’re after that point, and we’ve varied our prices, we’re going to take that same market basket, measure it against our customers, and if that savings isn’t 21 or 22 percent, we’re going to have to lower our prices until it is.

That’s the methodology. That way, you get to vary your prices so that you can’t guarantee that any one product will have the same price, but overall, in the face of the customer, you will have the same savings.

That is why the science of market basket is so important, because you can’t just treat every item the same, because every item that is sold in the commissary isn’t as important to the customer, and isn’t sold in the same quantities. You have to give weight to things that people actually buy and they actually care about, in order to make sure that your market basket is appropriately balanced.

Whatever that weighting is of how you do that, you are going to use the same weighting before as you use after, so you can see what that looks like. You can’t just raise all of the prices on the products that lots of people buy, and lower prices on products that people don’t buy and claim that you come out even. That’s not the way that it is going to work.

E and C News: Presumably, you will have pretty good data on what DeCA customers are actually buying, at what savings, at a point in time?

Levine: Right. So, we’ll be able to take our before and after measurements, yes.

E and C News: I guess when they are taken matters a lot, but you’ll cross that bridge …? .

Levine: We’ll do that on a regional basis.

E and C News: Given the constraints of com-missary shelf space, some brands will be forced out once private label products come in. At least that is the theory …

Levine: One of the things that we look at in the commissary business model is that there seems to be a tendency right now to give shelf space to everything, with the priority of nothing. As I un-derstand it, and I am far from an expert on this, there’s a whole science in the private grocery store industry … that’s not the way you work deals: you get your best pricing if you compete guys against each other, you give priority space; you don’t need to have seven different brands of mayonnaise. Maybe you have two, or one, and the guy that you give the space to gives you a much better price, because you have two or one rather than seven different brands.

You need to understand the way the supply chain

Among the topics under review by the DRBOB is the prioriti-zation of commissary

shelf space.



‘Because of the fact that we’re now saying that we’re going to hold the benefit constant, and that that’s the priority, we’re now looking at business efficiencies as such. So we no longer view this

as a benefits issue; we view it more as a business efficiency situation.’—Peter Levine, Department of Defense Deputy Chief Management Officer

Levine: I suspect that what we will probably do is to test it on products rather than stores; to roll it out by products, because the business case, the analysis that you have to do in terms of rolling out a private label, for example, you need to analyze a market and then get a payback, you are not going to want to develop this new product and sell it in a very small market. It is much better to develop a new product … you are not going to develop a lot of new products for one small market. It is better to develop one new product for a broad market.

So we are more likely to test it by rolling out gradually, individual products across the market, rather than everything and putting it into one store. That, of course, is a business decision that the busi-ness guys will make, but the assessment that I have heard is that that will be a much better and much more likely way to go forward.

E and C News: If patrons don’t like the pri-vate label, is there a fall-back plan for that?

Levine: If they don’t like private label, they will buy other things. We have studies and BCG has looked at them, our guys will look at them, about the marketing of private labels; where they have been successful in the private sector, where they work. We will be sensitive to that as we roll out ours, and, of course, we will be sensitive if there are some that work and some that don’t work. We will work with that, too.

If people are OK with commissary brand tooth-paste, but not commissary brand aspirin, then we will sell commissary brand toothpaste but not the aspirin. We’ll just have to see what works and what doesn’t work.

E and C News: Category management…?

Levine: Yes … category management principles. But as I say again, those guys are the experts, not me.

E and C News: Has the DRBOB considered the impact of any loss of business on industries and suppliers, and how that might affect their future support of the benefit?

Levine: We think it is in the suppliers’ interest for us to become more efficient and more viable to restore our business base. So, if our stores are better, if we have a sounder business base, if we have a sounder business model, that is going to be in their interest in the long run. That doesn’t mean that we are not going to try to drive savings, but when we become more efficient, we are going to need our supply chain to be more efficient, too.

It doesn’t mean that everybody keeps doing ev-erything the way they are doing it. But in the long run, we think it will be in their interest.

E and C News: What consideration is DoD giving to the many companies and suppliers that have 30, 40, 50 years invested in serving military resale exclusively — private label and variable pricing could irreparably damage and kill some of those businesses?

Levine: I come around to the same thing that I just said, which is that in the long run, they’ll be

E and C News: Inevitably, there might be a loss of SKU diversity, and it could have other implications, for example if private label does force out facings and products, it can lead to a lack of promotional dollars coming in from various manufacturers …

Levine: Again, one of the things that you do with your negotiation is that you get more promotion dol-lars, you get better pricing, by working your supply chain and competing. This is not an area where we are inventing something. It is an area where what we want to do is to drive the commissaries more to the model of that’s used in the private sector; make our commissaries look more like private sector grocery stores, and we think they will become more attrac-tive to consumers as a result. They will get better prices as a result.

Again, we are not making this up; what we are trying to do is to bring in a business model that has been used and is successful and drives competition in the private sector.

E and C News: Is consideration being given to the cost of hiring private label experts, setting up, implementing and even overseeing and managing a private label program, and the shelf-stocking cost, because obviously private industry is not going to stock private label?

Levine: We know that there are going to be some study costs involved. We have some exper-tise involved. We already have private labels in the exchanges, so we have some expertise already. So we think we have some capability, but we will need to build it further.

You talked about stocking. Actually, that is some-thing where we think that we can be more efficient rather than less efficient. The stocking system of the commissaries today, we do not think that it is a model of efficiency. Yes, we have suppliers do-ing their own stocking, but that seems to be driven more by the unusual pricing model that DeCA has to work under, the statutorily driven pricing model, because we can sort of consider it part of the cost of the good if the supplier does it. But the result is that we have many different people stocking shelves; we have them stocking shelves, maybe on a weekly basis, where a private grocery store would make their shelves more attractive by actually stocking on a more regular basis, on a centralized basis.

We think we can become more efficient, and show a better face to the customer in this area in particular.

E and C News: Does the five-year pilot test period apply to private label as well?

Levine: We already have from Congress author-ity to do private label. The problem with private

label is we not only need the authority — what we have is a way around the federal acquisition regu-lation (FAR) that might preclude us from using private label.

In order for private la-bel to be a viable economic model, we need to have the pricing flexibility so that we can establish our prices appropriately to save the customer money and save DeCA money.

Under the current model, you would never recover your investment from the developing of private label because you invest money up front to develop private label and you have to only charge a 5-percent surcharge, you never … it is just basically a money-losing proposition to develop a private label. So, we need both. We think the pilot program will help that, but frankly, we would like to get permanent au-thority from Congress.

E and C News: Assum-ing you get that, per-manent authority, is it going to be tested in a small number of stores or rolled out system-wide right away?

Soldiers review the as-sortment at AAFES’s renovated Clear Creek Exchange. The DCMO’s office intends to leverage expertise resident across DoD and the resale sys-tems as it seeks potential efficiencies and savings.

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advantaged by having us be a vi-able business. I don’t know that they can expect to keep doing the exact same thing in the exact same way they are doing it, but they are obvi-ously providing us with value-added, and as long as they are providing us value-added, we’ll continue to use them.

E and C News: How does the DRBOB or DoD or your office plan to keep industry and various folk informed on the progress or developments?

Levine: We’ve met with them. They are well plugged in. I think that there is good communication between the commissaries and ex-changes and their suppliers, and I think that it will continue to work through those business channels. We’re obviously open to talk to them in the Department of Defense, but we’re expecting our business folks to make the decisions, and they will continue to be the primary channel of communication.

E and C News: A question about retirees … they tend to be very price-sensitive. They have been promised the benefit that they have earned, and they would also seem to be very essential to economies of scale across the system. Is any attention being paid to their price sensitivity?

Levine: Again, our commitment is that we are going to achieve the same savings to the customer as the current system achieves, and that what we want to do is not to reduce the level of savings, but achieve that level of savings in a more efficient manner, regardless of who the customer is.

E and C News: One proposal — in the NDAA, at least — is to eliminate some CONUS com-missaries; have patrons shop at nearby stores; compete it out maybe, other grocery chains — that that could severely affect a large part of the supply base …

Levine: The NDAA has a provision directing us to come up with a plan to make the commissaries budget-neutral by FY18, I think, two years. What we interpret that to mean is a plan to eliminate the $1.4 billion appropriated fund subsidy by FY18 while retaining the same level of benefits, the same level

of service.I expect that we will, after we analyze that, tell

Congress that that can’t be done; that you can’t retain the level of benefit and eliminate the appropriated funds. What I expect we will tell them is that by FY18, the most we can expect to achieve is around $300 million in savings, and so to become budget-neutral, you would have to cut an additional $1.1 billion, and that could only be done by eliminating stores and drastically raising prices. I expect that Congress will not be interested in that option.

E and C News: In the event that stores are closed, or in lieu of a commissary benefit, has DoD thought about what they might offer patrons instead?

Levine: We will study the things that the Congress directed us to study, but our plan going forward is to run the commissaries on a more efficient basis.

E and C News: When I listened to your con-firmation hearings, it struck me that you have a lot on your plate. How much of your office’s efforts can be devoted to the reform of the military resale systems?

Levine: We have a few people working on it, but more importantly, what we need to do in this area is what we are doing in other areas, which is to harness the people in the department who have the

expertise. That is why the membership of the DRBOB is the business leaders of the commissaries and exchanges. We will support them; we will try to give them leadership, but we can’t do all the work, we need them to do the work. We need them to be the busi-ness experts.

That is the resourcing strategy that we are using in other areas, too. I mean, we have to draw on the expertise that’s resident in the Department in other areas. We can’t expect to do everything from the DCMO office, and frankly, we don’t want the DCMO office to be that big. It would not be in the Depart-ment’s interests.

E and C News: Why is there such a spotlight on the commissary ben-efit when it only accounts for 0.25 percent of the overall DoD budget?

Levine: A billion dollars a year is a lot of money. We tend to forget that when we look at all those zeroes

on DoD programs, but we have to look for savings where we can find them, and where we are running an inefficient operation — and I believe the com-missary business model, the current commissary business model, is not an efficient business model. We need to do what we can to drive savings into it and to work more efficiently.

E and C News: Do you see the DCMO office, your office, playing a role in the future in shepherding reform or is that something … ?

Levine: Commissary reform specifically, or other — ?

E and C News: Resale reform; commissaries and exchanges.

Levine: If I were going to give you a hope for what the future looks like, my hope would be that we can get the reform effort up and running and in good shape, get the business analysis done on the BCG and MCRMC recommendations, get the sav-ings initiatives that we currently have identified as potential savings initiatives up and running, get all that in stream over the next couple of years.

Once we have generally gotten over the hump and we think that this is running smoothly, I would hope that we can then step aside and have P&R take the lead in this role again.

—E and C NEWS

“... Our plan going forward,” according to Levine, “is to run the commissaries on a more efficient basis.”

PHOTO: MARY B. GRIMES, PAO, CAMP WALKER, DAEGU, KOREA


Department of Defense DCMO‘What I expect we will tell them is that by FY18, the most we can expect to achieve is around $300 million in savings, and so to become budget-

neutral, you would have to cut an additional $1.1 billion, and that could only be done by eliminating stores and drastically raising prices.

I expect that Congress will not be interested in that option.’—Peter Levine, Department of Defense Deputy Chief Management Officer

peter levine, department of defense deputy chief … · tion, the office of the dcmo is reviewing...

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