Recipient Agency Commodity Processing Handbook

1. Recipient AgencyCommodity Processing Handbook School Nutrition Association Anc/chicago – July 2007 Julie Lewis, SNS Mesa USD, Arizona

2. Collaboration of Efforts • Donny Cooper, State of Alabama • Mary Beth Flowers, USDA/FNS • Jean Harris, Pierre Foods • Mick Hocker, Feesers Distribution • Julie Lewis, Mesa Unified School District • Pavel Matustik, Santa Clarita Valley School Food Services Agency • Cathy Quick, State of Florida • Lynn Rogers, USDA/FNS • Melissa Rothstein, USDA/FNS

3. Objective • Develop “one-stop” commodity procurement resource for school districts and other recipient agencies • Combine existing RA guidance documents • Organize content into a user-friendly format • Fully describe procurement • Simplification of process and procedures • Encourage commodity processing

4. Outline of Handbook • Overview: the Process • The Processing Procedure • Procurement Methods • Procurement Topics of Consideration • Product Specifications • Value Pass Through Methods • Products Title • Pricing • Web Resources • Program History • Glossary of Terms • Glossary of Acronyms • Appendix

5. The Process • Menus • Product Selection • Product Evaluation (Cutting/Testing) • Usage • Surveys • Procurement • Orders and Delivery • Management of Commodity Balances

6. The Processing Procedure • Development of MENUS • School Food Service programs must grow to simply sustain. Costs will rise; revenue must grow as well. • Write menus at increasing participation. Participation increases revenue and perpetuates growth within the program. Do not write menus simply on the basis of cost. • Look at food cost as an investment not simply as an expense. • PLAN AHEAD. Create a cycle menu and stick to it. • Consider menu history: what works and what does not work - take into consideration customer’s tastes, preferences, and meal requirements • Pay attention to center-of-the-plate items (entrees/proteins) and high volume items (potatoes/tomatoes).

7. The Processing Procedure • PRODUCT SELECTION • Talk to your customers. • Meet with manufacturers and/or representatives on a regular basis • Go to food shows and conferences to learn about the newest products and latest trends • Network with peers • Put language in bid documents that permits you to evaluate products from manufacturers at any time.

8. The Processing Procedure • PRODUCT EVALUATION (CUTTING/TESTING) • Request samples of new products and test with kids (and adults) for acceptability • Compare new brands with existing brands to determine preferences (blind cutting) ** Must compare “apples to apples” • Written evaluation sheets should be used to document customer’s responses. Make them as non-subjective as possible. Example: Rate the product: poor taste=1; acceptable taste=5; great/preferred taste=10. This shows their preferences definitively. • Keep records of the products tested (brands and code numbers) and the results of the tests for building bid specs.

9. The Processing Procedure • USAGE • Based on planned menus, determine the number of servings needed to fulfill menu requirements for the entire fiscal school year.

10. The Processing Procedure • SURVEYS for Diversion of Commodities • Planned usage for “brown box” commodities • Request for diversion of cheese and other “B” commodities to processors of choice • Request for diversion of all other commodities to processors of choice • Make calculations based on the drawdown of lbs. of DF per case.

11. The Processing Procedure • PROCUREMENT The process of obtaining goods and services intended for the use of the NSLP and other child nutrition programs. Purchases made with non-profit food service program dollars must follow Federal regulations pertaining to procurement procedures. (7CFR316.36 & 7CFR3019) • Promotes free and open competition which increases accountability, integrity, and efficient use of non-profit food service dollars. • State and local authorities may impose more restrictive regulations also. The most restrictive prevails. • Consider timing in relation to survey deadlines

12. The Processing Procedure • ORDERS & DELIVERY • Direct from manufacturer to destination chosen by school district. (Fee For Service) • Through commercial distribution a. “Modified Fee” for Service b. Net Off Invoice • Through state contracted warehouses

13. The Processing Process • MANAGEMENT of COMMODITY BALANCES • Make sure that everyone involved with your allocation is on the same page with the same, correct information: • processor • distributor • state agency • you – the recipient agency • Be sure to recognize and add any roll over balances to new diversions • Ensure that the commercial distributor contracted to handle your commodities has an accurate tracking system. • Participate in sales verification, if necessary. • Ultimately it is your entitlement and your money you must properly manage it.

14. Procurement Methods • Each District’s needs and bidding requirements and purchasing thresholds may be, and often are, specific to that district • State and local regulations may be more stringent than Federal regulations and these must be incorporated into the procurement plan • Rule of thumb: the most restrictive regulation prevails. • Obtaining the best product/service at the lowest price is the goal in both the competitive sealed bid and proposal 1. Formal competitive sealed bids (Bid) 2. Formal competitive proposals (RFP)

15. Bid Notification Content of the 1st page of a bid Time Scope of Work Factors used in evaluation Bid covenants Bid period Renewal clause Escalation clause Performance Product specifications Value pass through methods Pricing Cost analysis Record Keeping Inventory reconciliation Storage fees Availability Insurance Delivery requirements Transportation and title Delivery/freight charges Penalties/contract termination Regulatory Risk and safety Payment terms Samples Procurement Topics

16. Product Specifications Product specifications should be a thorough description, inclusive of the following factors: • CN Labeling and Nutritional Information – Identify the labeling requirement and any nutrient maximums. (“not to exceed % fat”, etc.) • Commodity ingredients – Indicate which USDA raw ingredient will be reprocessed. • Yield – Request product yield info and indicate how/if yield will be used to evaluate the bid. Brands – As a result of product testing, list approved brands. Consider matching commercial codes and nutritional content should commodity bank run dry. • Quantity desired – Be realistic. The more accurate the numbers, the more aggressive it will allow the manufacture and distributor to be on cost.

17. Value Pass Through Methods • Fee For Service – price net commodity • Modified Fee for Service (through commercial distributor) • Indirect Discount (Net Off Invoice - NOI) – commercial price minus the value of the commodity ingredients • Rebates – commercial price, rebates can be automatic or submitted manually

18. Fee For Service • Contracting directly with a manufacturer to produce and deliver processed foods directly to your district/school. Disadvantages: 1. High minimums may lead to storing excess inventory, resulting in additional costs to the district. 2. Long lead time from order placement to delivery 3. Management of many contracts, resulting in additional costs. Advantage: 1. Lowest out-of-pocket price for commodity processed foods.

19. Fee For Service through Distribution • Use a commercial food distributor to handle your processed commodity foods for you. Disadvantages: 1. Additional procurement required to obtain this service. 2. Additional cost applied to FFS price; usually a fixed fee per case. 3. Competition Advantages: 1. Control of your inventory and the value of your inventory; reduction in costs. 2. Buy as needed in smaller quantities; reduction in costs 3. Adds volume to drop size; leads to lower prices all the way around. 4. Minimizes number of contracts to manage; therefore reducing costs. 5. Most manufacturers already partner with distributors and would prefer to limit the number of contracts they have to manage; reduction in costs, streamlined process.

20. Indirect Discount (“NOI”) • Commercial purchase for commodity processed foods. As long as there are commodities “in the bank”, the value of the commodities will be subtracted off the invoice. • Commodities are considered an “ingredient” in the finished product. • Trends indicate this PTV method will eventually eliminate “brown box” commodities.

21. Indirect Discount (“NOI”), cont. Disadvantages: 1. Mark up on “gross”, not “net”. For example: A bid is put out for FC chicken patties. The distributor obtains the gross price from the manufacture and then applies a markup to distribute to the school. If the school district has a bank account of commodity chicken with the manufacturer, then the value of the commodity chicken in the case is subtracted off the invoice on a second line. FC Chicken Patties Landed price (bid price/gross price) per case to Distributor: $30.00 Distributor markup (12%): + $ 4.09 Commercial price to school district: $34.09 Minus the value* of commodity chicken contained in case: - $10.00 Net Cost: $24.09 *Value is determined by USDA

22. Indirect Discount (“NOI”), cont. Advantages: 1. Further minimization of contracts; reduction of costs 2. All foods (commodity and commercial) can be purchased under one solicitation. 3. Branded products 4. Seamless distribution 5. Partnerships formed with distributors. More volume on trucks and larger drop size per stop; multiple deliveries as needed. 6. Multiple commodity ingredients contained in a processed product can be subtracted off an invoice. 7. One invoice to check; one bill to pay

23. Rebates • Products containing commodity ingredients (such as cheese) are placed on commercial bids. Schools pay the commercial price to the distributor and then submits for rebates to the processor for the value of the commodity contained in the cases purchased on a monthly or quarterly basis. Disadvantages: 1. Time consuming / hassle 2. Lag time to receive checks in the mail

24. Title of Product • Fee for Service transactions • The state agency or USDA (for national processing agreements NPA) holds title of the products until the product is received by RA’s designated point of destination. • Be sure the commercial distributor has proper insurance for market value of commodity-processed products if commodities are in their control at any time

25. Title of Product cont. • Net Off Invoice (NOI) transactions • This is a commercial purchase • The RA takes title once the distributor delivers the product

26. Pricing • Design your bid document to accommodate desired units of delivered product by: • Serving • Pound • Case • etc. • Request vendors to submit and list both commodity and commercial equivalent product information in their response, allowing bidders to submit FFS pricing and commercial pricing and pass through values if applicable.

27. Web Resources • Commodity Foods Network • ACDA • USDA/FNS/FDD Homepage • Commodity Files • FDD Training • SNA • USDA Food Buying Guide • Approved National Processing Agreement Manufacturers

28. Program History • What is processing? • What governs the processing program? • History of state processing program.

29. Appendix • NOI RA & Distributor sample agreement • FFS RA & Distributor sample agreement • Policy memo FD-025 • Vendor meeting sample form • Cafeteria manager survey sample form • Food sample form • Student survey I sample form • Student survey II sample form

30. Access to the Handbook 1. www.commodityfoods.org Go to the “Members Only” link and log on Go to the Processing link and scroll down 2. http://www.acdaschoolsra.org/ACDA.htm 3. Contact Julie at jclewis@mpsaz.org

31. More to Come • This handbook is a “live” document which will be edited and updated as time goes on. Topics for discussion in 2007 are: • Buy American Provision • Actual examples of good product specifications. • Actual examples of good bids and proposals

32. Summary • Design fantastic menus • Know what you want and how much you want of it • Divert, divert, divert and maximize dollars • Procure with integrity to fit your districts needs • Manage your balances • Be a good customer!

33. The End…