DeCA, headquartered at Fort Lee, Virginia, is the Department of Defense's designated agency for managing commissaries on a worldwide basis. A Commissary Operating Board, which is comprised of representatives from each of the military services, has day-to-day operational oversight responsibilities for DeCA. The Under Secretary of Defense (Personnel and Readiness) exercises overall supervision of the commissary system. DeCA operates four regional offices that oversee the management of its commissaries. Commissaries are located in 46 states and 14 foreign countries. As of November 7, 2002, the agency had 276 stores and more than 16,000 employees under its purview. Its annual sales in fiscal year 2002 amounted to about $5 billion. In meeting its mission of providing groceries at a savings to the customer, in the most efficient and effective manner possible, DeCA strives to provide the lowest cost possible, charging patrons only for the cost of goods plus a 5-percent surcharge. DeCA receives about $1 billion in direct appropriations from Congress for its annual operating costs. These funds pay for employees' salaries, transportation, some above-store-level information technology, and other expenses. DeCA also operates a resale stock fund for the purchase and sale of products. To the extent that savings in operating costs occur, they reduce the need for appropriated funds. The savings in store operating costs do not have an effect on the cost of merchandise sold to customers. In January 2001, DeCA issued its current strategic plan. This plan included objectives to reduce unit operating costs and reshape the workforce while maintaining or improving customer service and satisfaction. A major focus of the unit cost reduction objective was to reduce positions as well as streamline operations and develop a more efficient organization. To reshape the workforce, DeCA planned to determine the appropriate mix of skills and expertise and the appropriate level of part-time employees to carry out the reductions to reach a more efficient organization. DeCA conducts a biannual Commissary Customer Service Survey to assess customer views of products and services. A team appointed by each store director administers the survey. Customers are systematically selected while waiting in checkout lines. A predetermined number of questionnaires are collected during three periods (morning, midday, and evening) each day for 10 consecutive days during May and November each year. The survey questions are multiple choice with space available for written comments. See appendix I for a copy of the questionnaire. The completed forms are mailed to DeCA headquarters for analysis, and customer service scores are calculated for DeCA overall and for each region and store. Despite the workforce reductions, store operations and customer service have been maintained at the same level, and in some cases improved. DeCA has used various measures to eliminate 2,602 full-time positions, or 85 percent of the planned reductions as of December 31, 2002; very few employees have been separated from the agency. While downsizing and reshaping were occurring, regional officials stated that they encouraged store directors to use part-time positions to maintain store operations. DeCA officials stated the use of part-time employees has enabled store directors to better manage workload fluctuations, expand hours of operation, and thereby improve customer service. However, because DeCA's strategic plan does not include specific goals for achieving a certain full-time/part-time workforce mix in stores, the planned percentage of part-time positions varies widely by individual store and region. Despite personnel reductions, scores for the customer satisfaction surveys completed since DeCA began the personnel reductions show the same or slightly increasing levels of customer satisfaction with the stores. Notwithstanding the improvements, managers of small stores report having difficulty balancing store operations and duties, as a result of the reductions in the number of management positions. DeCA is using workforce reductions as the primary means to achieve its goal of reducing operating costs by fiscal year 2004. As table 1 shows, DeCA plans to reduce its workforce by 3,047 full-time positions, a decrease of 17 percent from its fiscal year 2000 staff. Of these positions, the largest number (2,690) will come from reductions at the store level while 187 will come from headquarters and 170 from regional offices. As of December 31, 2002, DeCA had completed all of its workforce reductions at the regional offices and 62 percent of its planned headquarters' reductions. It accomplished this by eliminating 137 vacant positions (114 in headquarters and 23 in the regional offices). It reduced its regional staff by another 147 positions through organizational changes and other efficiencies, including closing two area offices in one region. By the same date, DeCA had completed most of its planned workforce reductions at the store level, eliminating 2,316, or 86 percent of the 2,690 positions that it had targeted. As table 2 indicates, most of the planned store-level reductions (51 percent) are being achieved by implementing efficiency measures within stores. Efficiencies are being derived by implementing new staffing standards for each department within a store based on sales volume and other measures. The remaining reductions are accomplished by other methods, including eliminating vacant positions, closing stores, and contracting out some functions. A breakdown of completed and planned workforce reductions at the store level are as follows: 1,113 positions were eliminated by implementing the new store staffing standards based on sales volume. The remaining 261 efficiency reductions are planned in fiscal year 2003. 812 vacant positions were eliminated. A DeCA official stated that vacant positions existed because stores had historically been funded at only 90 percent of their required staffing. The elimination of these positions resulted in no personnel losses and produced no savings. 304 positions were eliminated as a result of 15 store closings. Closings can stem from Base Realignment and Closure recommendations or Under Secretary of Defense (Personnel and Readiness) approval of DeCA's recommendations from internal assessments. An additional 49 positions will be eliminated at two stores scheduled to close in fiscal year 2003. 87 positions were eliminated by contracting out such store functions as receiving, handling, and stocking. An additional 30 positions at various stores will be eliminated in this way in fiscal year 2003. The remaining 26 planned reductions were canceled to provide positions for a new computer-aided ordering function. Although DeCA had eliminated most of the planned 2,690 positions from its stores by the end of 2002, only 122 store employees were separated from the agency by a reduction in force and an additional 341 employees retired. Other employees were reassigned or moved to lower graded positions through the reduction process. As part of the effort to reshape the workforce, all stores have begun to, or plan to, increase the use of part-time positions to manage workloads and meet the needs of customers. However, since DeCA's strategic plan does not include specific goals for achieving a certain full-time/part-time workforce mix in stores, the planned percentage of part-time positions varies widely by individual store and region. The available data shows that the number of part-time positions in stores has increased since the personnel reduction plan went into effect. For example, the number of part-time employees rose by 8 percent in stores in the Midwest region between April 2001 and October 2002. Store directors told us that using part-time employees improved their ability to manage fluctuations in store workloads more effectively. For example, a store director said that part-time employees were used during weekends and holidays to save money. Another store director pointed out that part-time employees are available to work if there is work to do in a department or cover a peak shopping period, but they can be sent home if the work is completed. In addition, some store directors told us that a greater use of part-time workers has allowed them to increase their store operating hours. We found that 30 stores have increased their hours of operation by relying more heavily on part-time employees. For example, one store with a part-time workforce of nearly 60 percent increased its operating hours by 6 hours a week. In addition, current individual store plans call for a growth in the number of part-time positions in stores as of the end of fiscal year 2003. The Eastern and Midwest regions estimate that about 56 percent of their store positions will be part-time, and the Western Pacific region estimates 46 percent of its store positions will be part-time. Table 3 shows the range in the percentage of part-time positions that stores within each sales band plan to employ. As table 3 shows, the planned percentage of part-time positions varies widely by individual store and region. For example, one Eastern region store expects to convert all of its store positions to part time while another store in the Western Pacific region plans to have only 7 percent of its workforce as part time. While some stores are close to the 75 to 80 percent industry average for part-time positions in commercial grocery stores, the overall regional average of part-time positions indicates that there are opportunities to achieve more efficiencies through greater use of part-time positions. Store directors have the flexibility of changing the mix of full-time and part-time positions in their stores. Some store directors told us they used part-time positions primarily to meet their budget goals. One store director said that part-time positions were created to meet the store's budget and that there were no plans to increase part-time positions in the store once the needed reductions were made. However, nearly all of the store directors we interviewed said that they could operate their stores with more part-time positions rather than full-time positions. As indicated earlier, they recognized that part-time positions provide flexibility to manage workload fluctuations more effectively. A regional director said that agencywide goals for part-time workers need to be incorporated into the strategic plan to optimize agency efforts to reshape the workforce. According to recent surveys, customer satisfaction with commissary stores has shown a modest, but steady, improvement between October 2001 and November 2002, the period when personnel reductions were being made. These improvements were registered in the overall score, ranging from 4.33 to 4.39, as well as in specific products and service categories. Table 4 includes results for 6 of the 14 questions, as well as the overall score. These scores reflect continuing satisfaction including those likely to be most immediately affected by changes in personnel levels such as checkout waiting time. As part of the effort to reshape the workforce, many directors of small stores (bands 1 and 2) told us they had to eliminate one managerial position. Small stores that have less than $60,000 in average monthly sales were required to reduce the number of managers to one manager. Small stores with $60,000 to $500,000 in average monthly sales had to reduce their number to two managers. The managers of 15 of the 28 band 1 stores told us that they are having difficulties balancing store operations with their own managerial and administrative duties along with doing the work of absent employees. Some store directors said they typically have to work more than 40 hours a week to perform all these duties. Eighty-seven percent of these 15 band 1 stores are open more than 40 hours a week. Because DeCA policy requires that a manager be present in the store when it is open for customers, when the second manager or an employee is absent, the on-duty manager has to carry his/her own workload and administrative functions, as well as the load of the absent manager or employee, typically working over the usual 40-hour work week. DeCA headquarters officials have recognized the concerns raised by managers in small stores and the need to balance their overall workload but have not yet developed a plan for doing so. Overall, DeCA's customer satisfaction survey methodology is a reasonable approach to obtain customer feedback. It adheres to standard questionnaire design principles, and attempts to select shoppers in an unbiased fashion. However, some improvements in the analysis of survey data could be made to provide more precise and complete customer information. For example, it could adjust survey results for actual sales volumes, or report and possibly adjust for shoppers who refuse to complete the survey questionnaire. Because these factors are not considered, overall survey results could be distorted to some degree. Furthermore, the current survey does not collect information on the number of service members who do not shop at a commissary and reasons why they do not. DeCA's current methodology appropriately attempts to obtain more survey responses from stores with higher sales volumes than stores with smaller sales volumes. DeCA places commissaries into three groups according to sales volume. They do this so that survey responses of customers in greater sales volume stores receive more emphasis than those in lower volume stores. For example, stores in the largest sales volume group are required to collect 150 responses, stores in the next largest sales group collect 100 responses, and those in the lowest sales volume group collect 50 responses. However, sales volume can vary significantly among the stores in the same group as well as between groups. A more precise methodology would entail weighting survey responses by the relative sales volume of individual stores. This approach could help DeCA avoid potential over- or underreporting of survey results, and evaluate changes in survey results that may be impacted by changes in sales volume. DeCA does not document the number of customers who refuse to participate in the customer satisfaction survey. DeCA officials told us that most customers selected to participate in the survey willingly respond, but they acknowledge that documenting the number of non-respondents would enhance survey reporting. Survey literature indicates that even nominally low levels of non-responses can influence the interpretation of survey results. There may be a particular sub-group of customers that does not respond to the questionnaire and that would not be reflected in DeCA results. By not adjusting for non-response, DeCA is assuming that respondents have similar satisfaction scores as non-respondents. Also, by collecting data on non-respondents, the agency may be able to determine if the results omit customer subgroups whose opinions may be important. For example, some dependents of service personnel may not feel comfortable participating in the survey because of language barriers. DeCA does not conduct systematic assessments of the number and types of personnel who do not shop at commissaries. The customer satisfaction survey is conducted in the stores, and thus reflects the views of those who shop at the commissaries. They do not capture the views of those who do not shop there. Although DeCA's strategic plan addresses the need to attract more military personnel to use the commissary, DeCA officials do not know to what extent eligible customers are not shopping at a commissary and the reasons why not. Realignment of the workforce, through greater use of part-time employees, has enabled many stores to increase their operating hours and maintain or improve customer service. However, DeCA's strategic plan does not include specific goals for the full-time/part-time workforce mix. As a result, the extent of part-time employees varied among the stores and is significantly less than current industry practice. Opportunities to achieve even more efficiencies may exist through greater use of part-time positions. In addition, small store directors have concerns about balancing their workload and maintaining store operations. Although DeCA's customer satisfaction survey questionnaire is reasonable, survey results could be subject to some under- or over- stated because the current methodology does not explicitly weight stores' results by sales volume and does not collect data on non-responding customers. Finally, DeCA does not know how many eligible service members do not shop at a commissary and the reasons they do not. We recommend that the Under Secretary of Defense (Personnel and Readiness), in consultation with the Chairman, Commissary Operating Board, require the Director, Defense Commissary Agency, to update the strategic plan to include goals that identify the percent of the store workforce that is expected to be full- and part-time to achieve further efficiencies from reshaping the workforce; reassess the management reductions at small stores to ensure managers can balance their workload and maintain store operations; adjust the customer survey results on the basis of sales volume and document the number of survey non-respondents and their reasons for not completing the questionnaire; and examine potential methods and analyses to periodically determine how many and why eligible personnel do not shop at commissaries, to identify ways to improve service and increase the number of potential customers using the commissary benefit. In commenting on a draft of this report, the Under Secretary of Defense (Personnel and Readiness) concurred with four of our five recommendations and outlined actions to be taken to address the four recommendations the department concurred with. He disagreed with our recommendation that the Defense Commissary Agency update its strategic plan to include goals that identify the percent of the store workforce that is expected to be full- and part-time, expressing the view that staff in Washington should not prescribe the full-part-time mix for stores. The intent of our recommendation was not for the Under Secretary to prescribe the workforce mix for stores but rather have the Defense Commissary Agency include agencywide goals on the projected workforce mix in its strategic plan to help achieve the goal of reshaping the workforce. Rather than being arbitrary or prescriptive, such goals, if based on considered research or best practices, could provide an important term of reference to guide staffing decisions at the local level to optimize organizational performance and cost effectiveness. We continue to believe the recommendation is an appropriate one for the Defense Commissary Agency to implement. The department's comments are reprinted in appendix II. We performed our work at DeCA headquarters located at Fort Lee, Virginia, and DeCA's three regional offices in the continental United States (the Eastern Regional Office in Virginia Beach, Virginia; the Midwest Regional Office in San Antonio, Texas; and the Western Pacific Regional Office in Sacramento, California). Due to travel costs and time constraints, we did not do any work at the European Regional Office in Germany; however, the total number of reductions shown for DeCA does include positions in the European Region. To determine the status of DeCA's personnel reduction plan, we obtained data from DeCA headquarters and each regional office on the number of reductions planned by region by store as well as made as of December 31, 2002. We also analyzed reduction-in-force data to determine the actual or estimated impact on store employees. We also reviewed DeCA's strategic plan to document DeCA's plans for reducing unit operating costs and reshaping the workforce. We did not validate the cost savings reported by DeCA. To determine how store operations and customer service have been affected by the personnel reductions, we interviewed officials at DeCA headquarters and the three regional offices in the United States. We also interviewed store directors at eight stores that were near the Eastern and Midwest regional offices. In addition, we also conducted telephone interviews with either the store directors or managers for 38 band 1 and 2 stores in the continental United States (defined as having average monthly sales volume of less than $1 million), resulting in interviews of all 41 band 1 and 2 stores in the continental United States. We also determined the planned use of part-time positions by each store in the three regional offices visited. Finally, we also reviewed and discussed the Commissary Customer Service Survey results for the surveys conducted in October 2001 and May and November 2002, to identify changes in the satisfaction scores as the personnel reductions were being implemented. To determine if the DeCA customer satisfaction survey methodology is reasonable, we reviewed DeCA's questionnaire and methodology and contrasted these to standard questionnaire design and statistical sampling procedures used in industry and government research. We also interviewed DeCA officials responsible for administering the survey regarding their analysis of survey results. We also observed the survey being conducted at the Fort Myer store in Virginia in November 2003. We conducted our review from July 2002 through January 2003 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretary of Defense; the Under Secretary of Defense (Personnel and Readiness); the Chairman, Commissary Operating Board; Director, Defense Commissary Agency; and the Director, Office of Management and Budget. In addition, the report will be available at no charge on GAO's Web site at www.gao.gov and to others upon request. Please contact me at (202) 512-8412 if you or your staff have any questions concerning this report. Major contributors to this report were Michael Kennedy, Leslie Gregor, Betsy Morris, Curtis Groves, and Nancy Benco.

Summary:
In response to concerns about the impact of proposed cuts in the Defense Commissary Agency's workforce, the House Armed Services Committee placed in its report on the Bob Stump National Defense Authorization Act for Fiscal Year 2003 a requirement that we evaluate the effect of the personnel reductions. Specifically, we assessed (1) the status of personnel reductions and how they have affected store operations and customer service, and (2) whether the agency uses a reliable methodology to measure customer satisfaction with its commissaries. The Defense Commissary Agency's commissary operations and customer services have been maintained at the same level, and in some cases improved, despite the recent reductions in workforce. As of December 31, 2002, the agency had completed most of its 3,047 planned personnel reductions in full-time positions. It accomplished this primarily by achieving efficiencies or eliminating vacant positions in the stores. Only 122 employees have been separated and 341 retired as a result of the personnel cutbacks. A major focus of DeCA's personnel reductions, as outlined in its strategic plan, was to reshape the workforce and develop a more efficient organization. We found that commissaries are making greater use of part-time employees because of the reductions. This has allowed some stores to increase their operating hours to better meet customer needs. It has also given store managers more flexibility in meeting workload fluctuations. However, DeCA's strategic plan does not include specific goals for achieving a certain full-time/part-time workforce mix in stores. As a result, the planned percentage of part-time positions varies widely by store. A recent customer satisfaction survey showed that commissary patrons expressed high satisfaction with their overall shopping experience, as well as with such key indicators as time waiting in line and convenient hours. However, the managers of the smaller commissaries reported concerns over balancing workload and maintaining store operations. We found that the Commissary Customer Satisfaction Survey methodology is reasonable. However, some improvements in the analysis of survey data could ensure that the findings are more complete and consistent. Such changes could include adjusting survey results for the volume of sales at individual stores or for the number of shoppers who refuse to fill out the questionnaire. Furthermore, the current survey does not collect information on the number of, and reasons why, potential customers do not shop at their local commissaries.