Two years ago this past May, Deputy Defense Secretary Paul Wolfowitz gave a surprise order that the three military exchange services be merged. To brainstorm how best to do that, a Unified Exchange Task Force was formed.

Sixteen months and several million dollars later, Wolfowitz' call for full exchange integration was scrapped for a more modest plan — to combine back-office functions only such as the systems' financial practices, information technology, logistics and personnel systems. These changes to on-base department stores worldwide would be invisible to customers but still lower operating costs.

Almost one more year has passed. Wolfowitz is moving on to become president of the World Bank. Some exchange service leaders say they still haven’t seen a strong business case for combining even back-office functions. And the difficult two-year dance to make the Army and Air Force Exchange Service (AAFES), the Navy Exchange Service Command, and the Marine Corps Exchange operate more efficiently has raised obvious blisters among the folks responsible for overseeing and managing this prized benefit. Some of the soreness and hard feelings were on display during an April hearing of the House Armed Services Subcommittee on Military Personnel. Exchange service commanders, for example, had at the ready estimates of exchange profits used to provide data and staff support to the task force: more than $2 million combined.

Army Major Gen. Kathryn G. Frost, commander of the AAFES until her April 30th retirement, said AAFES has supported integration but has "been disappointed by the lengthy timelines and frustrated by the enormous cost, both in terms of manpower and talent as well as actual expenses."

AAFES alone spent more than $1.2 million in exchange profits and more than 20,000 man-hours and those numbers continue to grow, Frost says. "Consolidation has the potential to result in a stronger, more efficient exchange system, but only if we get the timeline, the structure, and the implementation right."

Michael P. Downs, director of the Marine Corps' family readiness division in Washington D.C., says his service has spent $600,000 so far to support the task force. "Unfortunately, the level of effort to date has yet to produce actionable or validated findings worthy of critical evaluation or decision-making," Downs says. Rep. Thelma Drake (R-Va.), noting the obvious lack of enthusiasm toward even the "shared services" concept, says she questions "what we are doing, why we are doing it, and how long we’re going to continue in this direction — spending money that is coming directly from your profits."

The task force itself has spent at least another $10 million, says Charles S. Abell, principal deputy under secretary of defense for personnel and readiness, the official Wolfowitz tasked with overseeing the merger.

Abell says the department’s intent always has been to preserve the shopping benefit by improving profits through business-like streamlining and cost efficiencies. That remains the goal for combining back-office functions. But he cites continuing "staff resistance" among the exchange services.

Some integration must occur to protect the benefit, Abell says. "Trends within the retail environment and the repositioning of the U.S. military force are putting increased pressure on the exchanges," Abell told the subcommittee. Because exchanges can’t grow their customer base like civilian retailers, they must change their cost structure.

More than half of exchange profits are generated overseas, Abell noted. That "profit profile" will be hurt by global restructuring, which soon will require the transfer of up to 70,000 troops and 100,000 family members and civilian employees from overseas to stateside bases. This will force some stores to close and require that new ones open stateside, furthering the pressure on profits. Meanwhile, providing exchange services to expeditionary forces in Iraq and Afghanistan further impacts profits that the services must rely on to fund their morale, welfare, and recreational (MWR) activities.

The task force is conducting case analyses to find the best model for moving to shared back-office services. Abell says the merged functions could shave 15 percent to 40 percent off exchange operating costs, which will allow higher dividends to fund MRW and lower prices for patrons.

Acknowledging exchange service complaints about the strain that integration efforts has imposed on their staffs, Abell promised that future task force moves would be less "burdensome." But they will proceed.

"If we don’t act now," Abell warns, "short-term victory by today’s naysayers may simply mean they have doomed the exchanges to further erosion of the service member’s benefit."

Tom Philpott is a freelance writer and syndicated news columnist. His column, "Military Update," appears in 48 daily newspapers throughout the United States and overseas.