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DIRECT DIVERSION PROCESSING Basic Training Session

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Title: DIRECT DIVERSION PROCESSING Basic Training Session


1
DIRECT DIVERSION PROCESSINGBasic Training Session
  • Wednesday
  • September 24, 2008
  • 1230 to 200 pm

2
What is Direct Diversion?
  • Processing Option for WI schools
  • Bulk commodities committed by schools on annual
    order to chosen processors
  • For example
  • Raw bulk chicken into chicken nuggets
  • Raw coarse ground beef in cooked beef patties
  • Bulk orange juice into 4-oz orange juice cups
  • Bulk commodities are ordered by DPI to be shipped
    directly from USDA to the processors

3
The Benefits
  • Increase participation
  • More variety
  • School-specific products
  • Consistent product
  • (commodity commercial)
  • Can Save you Money
  • Easy/fast preparation

4
How Do Schools Commit Bulk Pounds?
  • During the Annual Order Period (January 15 to
    February 15) schools select the processing option
    of their choice.
  • The direct diversion processing survey lists all
    bulk commodities and participating processors.

5
Direct Diversion Processing Survey
6
Bulk Raw Products List
7
Processors Available for Bulk Coarse Beef
8
What Do I Have To Do?Where and How Do I Start?
9
THE STEPS
  • Processors
  • Products
  • Procurement
  • Agreements
  • Annual Order
  • Order End Products
  • Monitoring

10
PROCESSORS
  • Who are the eligible processors for Wisconsin?
  • Annually, all interested processors must
    complete an Intent to Participate form and
    return to DPI.
  • A List of eligible processors is listed on the
    DPI website at the end of September of each year.

11
Products
  • What products are available for your program?
  • 1) Processors Summary End Product Data
    Schedules
  • 2) Food Show

12
Summary End Product Data Schedule (SEPDS)
13
SEPDS
  • Please Note The commodity values are updated
    annually by USDA. The new commodity values are
    released on November 15 for the following school
    year. Each processor must re-submit their SEPDS
    to USDA for approval after the release on
    November 15th. It takes some time for USDA to
    approve the SEPDS with the new prices.
    Therefore, the SEPDS may not be available for a
    few months after the release of the new prices.
  • The commodity value for the bulk commodity may
    increase or decrease.
  • Therefore, the amounts in Column H and Column I
    may be slightly different for the upcoming year.

14
Products
  • How many servings per product do you need?
  • Determine approximate usage by
  • Servings per day x number of days on menu
  • (100 students x 45 days 4,500 total servings
    needed)


15
PROCUREMENT
  • Informal and formal procurement methods are
    established practices, appropriate for the
    acquisition, that are followed consistently.
  • Determine which method you must use.

16
Informal Procurement
  • Relatively simple and informal practices to
    acquire goods and services that cost less than
    the small purchase threshold (100,000)
  • Small purchases are conducted using specific
    procedures that are not as rigorous as formal
    procedures, but STILL PROVIDE COMPETITION.

17
Informal Procurement Method
  • Price quotations are obtained from an adequate
    number of qualified sources.
  • Although informal, school should provide an
    adequate purchase description for the desired
    product(s).

18
Formal Procurement
  • Formal procurement methods are established
    procedures that must be followed when purchase is
    expected to equal or exceed the small purchase
    threshold (100,000)

19
Formal Procurement Methods
  • Competitive Sealed Bidding
  • Competitive Proposals

20
Competitive Sealed Bidding
  • Invitation for Bid (IFB)
  • Most appropriate for processing
  • Must have a complete, adequate and realistic
    specification or purchase description
  • Firm fixed price contract and is awarded to the
    lowest priced responsible, responsive bidder
  • Formal advertising is required
  • All bids opened publicly on specified date

21
Competitive Proposals
  • Uses a Request for Proposal (RFP)
  • Firm fixed price or cost reimbursable contract
    is awarded to the responsible offeror, price and
    other terms
  • The response to a RFP consists of two distinct
    elementstechnical proposal and cost proposal
  • Offerors to a RFP must be ranked using identified
    criteria

22
What additional direct diversion-specific
information do I need to include in my
informal/formal procurement process?
  • End Products
  • 1) What end products to purchase
  • 2) Approximate usage of products (how much do
    you need to order?)
  • 3) Delivery schedule of end products
  • 4) Specify delivery location of finished end
    products (i.e., to your district or to your
    distributor)
  • Value Pass Through Methods
  • Yield Options

23
What Information Do I Require the Vendor to
Include in Their Submission?
  • Manufacturers product code number of product(s)
    submitting for bid
  • USDA bulk commodity code number for the commodity
    used in the end product(s)
  • The meal pattern contribution per serving
  • Summary End Product Data Schedule (SEPDS)

24
Delivery of End Products
  • All direct diversion processed products cannot
    come through the state-contracted warehouses.
  • School must ensure that theyve addressed
    delivery needs as a part of the procurement
    process.
  • It may be necessary to coordinate commercial bid
    for delivery of commodities with direct diversion
    procurement process.

25
What is Value Pass-Through?
  • Value pass through is the way in which SFAs
    receive the full value of donated food contained
    in a further processed product.
  • (Or, the entitlement value of the bulk product
    contained in the end product.)

26
Value Pass-Through Options
  • Sales Refund to Recipient Agency
  • Fee for ServiceProcessor
  • Fee for ServiceDistributor
  • Net Off Invoice (NOI)

27
Sales Refund
  • DirectProcessor sells end product directly to RA
    and invoices RA at gross price. RA applies for
    refund/rebate for value of commodities contained
    in end product.
  • IndirectProcessor sells end product to a
    commercial distributor at gross price.
    Distributor invoices RA for gross price. RA
    applies for refund/rebate from processor.
  • commercial price Your price
  • (school applies for a refund monthly)
  • Example of this value pass through method is the
    cheese processing program.

28
Fee for ServiceProcessor
  • Processing fee charged by processor.
  • Processor invoices RA for the cost of the
    non-commodity ingredients and the processing fee.
  • Value of the commodity has already been taken out
    of the price.
  • Other ingredients labor packaging overhead
    other costs Your Price

29
Fee for ServiceDistributor
  • Distributor invoices RA for the cost of the
    processed product and distributor
    handling/storage fees.
  • Price represents a processors cost of
    ingredients, labor, packaging, overhead and other
    costs incurred in the conversion of commodity
    into an end product.
  • Value of commodity has already been taken out of
    the price.
  • other ingredients labor packaging overhead
    other costs Your Price

30
Net Off Invoice (NOI)
  • Processor sells to a commercial distributor at
    gross price of end product.
  • Distributor invoices RA at net case price.
    Invoice lists gross price, minus value of
    commodity in case and then net case price.
  • Distributor claims a credit from processor for
    the value of commodity food contained in the end
    product.
  • gross price - commodity value net case
    price

31
Why Do I Need to Know Value Pass Through Methods?
  • Not all processors do all methods.
  • During the procurement process, SFAs need to
    indicate which VPT method(s) they are requesting
    pricing for.
  • For monitoring purposes, SFAs need to ensure
    they are receiving the full value of donated food
    back.

32
What is A Substitutable Donated Food?
  • In commodity processing, all donated foods
    offered by USDA to distributing agencies fall
    into one of the following categories
  • 1) substitutable
  • 2) non-substitutable

33
Substitutable Donated Foods
  • Full Substitution
  • Limited Substitution

34
Full Substitution
  • A processor can substitute commercial food for
    commodity foods (except beef, pork, and poultry
    on a limited approval basis) without restriction,
    so long as the substitute food is of the same
    generic identity, equal or better quality, and of
    domestic origin.
  • Fully substitutable foods are subject to the 100
    yield requirements.

35
Limited Substitution
  • The substitution of commercial product for
    donated foods with some restrictions. This is
    applicable to poultry products. Processors must
    have a substitution plan approved by both FNS and
    AMS. Only bulk pack chicken, chicken parts, and
    bulk pack turkey delivered by USDA vendors to
    processors are eligible for substitution.
  • No backhauled poultry may be substituted.

36
Non-Substitutable Food
  • A USDA donated food that cannot be substituted
    with a commercially purchased product under the
    terms of a processing agreement.

37
Why Do I Need to Know About Substitution Methods?
  • The type of substitution method utilized by your
    processor(s) will determine when you receive
    finished end products.

38
What is Yield?
  • For a defined amount of bulk raw commodity used
    to process a finished end product, yield is the
    amount (or percent) of commodity that ends up in
    finished end product.

39
Yield Methods
  • 100 Yield
  • Guaranteed Minimum Return (GMR/GMY)
  • Guaranteed Return (GR)
  • Standard Yield (SY)

40
100 Yield
  • Processor must return 100 of the donated food
    received back to RA in the form of finished end
    products.
  • Processor must add equivalent commercially
    purchased food to make up for manufacturing loss.
  • Example is cheese processing

41
Guaranteed Minimum Return
  • The minimum weight or number of units of
    processed product that will be produced and
    returned for a set amount of donated food
    provided.
  • This information is obtained from the processors
    summary end product data schedules.
  • Example is turkey mini corn dogs.

42
Guaranteed Return
  • A red meat processing option
  • Specifies an exact number of finished cases that
    will be returned to the RA from the processor.
  • Example is beef patties.

43
Standard Yield
  • A concept that fixes the number of finished cases
    that a RA will receive from a fixed truckload of
    raw commodity.
  • Standard yield will be higher than a processor
    could normally achieve in regular processing.
  • Standard yield requires the processor to add some
    commercial product to the commodity product.
  • Example is chicken nuggets.

44
Why Do I Need to Know Yield Methods?
  • Schools need this information for procurement
    evaluation.
  • Schools need to know the various methods for
    monitoring, to ensure receipt of full commodity
    value.

45
Conducting the Procurement Process
  • Federal, State and local regulations must be
    followed.
  • The most restrictive regulation(s) prevails.
  • The procurement goal is to obtain the best
    product at the lowest price through a competitive
    process.

46
Award Selection
  • The final step of the procurement process
  • Awarding to winning vendor(s)
  • Entering into a contract/agreement with
    vendor(s).

47
AGREEMENTS
  • DPI/SFA Agreement
  • Fees for Service Recipient Agency and Distributor
    Sample Agreement
  • Value Pass Through (NOI) Recipient Agency and
    Distributor Sample Agreement

48
DPI/SFA Agreement
  • Due back to DPI by February 1
  • Annual agreement
  • Prep/joint language
  • FSMC/Vendor language
  • Agreement available on DPI/Commodity webpage

49
Fee for Service Recipient Agency and Distributor
Sample Agreement
  • Outlines responsibilities of each party
  • Annual agreement
  • Invoicing details

50
Value Pass Through (NOI) Recipient Agency and
Distributor Sample Agreement
  • Annual agreement
  • Outlines distributors responsibilities

51
DIRECT DIVERSION ANNUAL ORDER PROCESS
  • Determine raw pounds to commit.
  • Make commitments on annual order.
  • View final commitments for upcoming school year.

52
Determining Raw Pounds
  • Peanut Butter (DF) and Jelly Sandwich
  • DF Inventory Draw
  • Down per case Approximate Usage Raw pounds to
    commit
  • 5.08 lbs. X 63 cases/year
    321 pounds
  • Chicken (DF) Nuggets
  • DF Inventory Draw
  • Down per case Approximate Usage Raw pounds to
    commit
  • 20 lbs. X 55
    cases/year 1100 pounds

53
Annual Order Period
  • January 15 to February 15, place annual commodity
    order.
  • Per commodity product, enter total commitments by
    processor.

54
Inventory
  • Bulk commodities have various ship periods
    available, which may affect when schools may
    start receiving finished end products.
  • Some processors will allow schools to receive
    finished end product(s) prior to processor
    receiving USDA bulk commodity(s).
  • Verify with your processor(s) when you can start
    receiving finished end products. If and how much
    varies by processor.

55
Inventory
  • USDA Policy FD-040 explains inventory draw down
    for each value pass through method.
  • DPI Inventory Carryover Policy.

56
Shortages/delays/cancellations
  • Do USDA commodity delays, shortages, and
    cancellations affect direct diversion?
  • Yes, but how and to what extent depends on the
    processor and the VPT.

57
Final Commitment
  • In May, schools can view final commitments
    ordered for each processor.
  • Adjustments may have been made by DPI to schools
    initial commitments.

58
ORDER END PRODUCTS
  • May through July schools will work with
    processors and food brokers to place orders and
    identify delivery schedules and locations for the
    upcoming school year.
  • Please note that all processors have different
    lead time requirements for placing orders.
    Therefore, placing your orders early is important
    to ensure that processors can meet your delivery
    schedule.

59
ORDER END PRODUCTS
  • Minimum production run requirements apply at the
    processor level. In addition, processor may have
    minimum ship requirements.
  • Minimum drop requirements apply at the
    distribution level.
  • Remember, all direct diversion processed products
    do not come through the state-contracted
    warehouse.

60
MONITORING
  • August to May All schools must track orders to
  • 1) ensure orders are accurate and complete
  • 2) monitor inventory balances at processors
  • 3) monitor value pass through methods to
    ensure receipt of entitlement value
  • School agrees to participate in all processors
    sales verification programs.

61
MONITORING (Contd.)
  • Many of the processors have electronic systems
    for monitoring inventory balances.
  • Schools are responsible for understanding and
    accessing all applicable systems, as used by
    their selected processors
  • Two common systems used
  • K12-Food Service http//www.k12foodservice.com
  • ProcessorLink https//www.processorlink.com

62
Invoicing
  • Administrative fee charged on all bulk pounds
    committed to processors.
  • Bulk pounds committed for both direct diversion
    and cheese processing program will have an
    administrative fee.
  • Fee is charged on the adjusted amount, after DPI
    has balanced truck loads.
  • Fee is billed in August of each school year and
    collected through the offset method.

63
Direct Diversion Timelines
  • Mid-Aug Direct Diversion information Packet
    mailed to all SFAs
  • 1st wk Sept Processors return Intent to
    Participate agreement to DPI
  • Mid-Sept List of interested processors posted on
    website
  • Sept 24 Food show with all interested direct
    diversion processors for all potential direct
    diversion schools
  • 1st part Oct Direct Diversion training session
  • 3rd wk Oct Detailed direct diversion process
    packet available online
  • End-Oct SFAs begin procurement process for
    direct diversion vendors
  • Mid-Jan SFAs select direct diversion vendors,
    using appropriate procurement process. SFAs
    verify commercial distribution of selected
    processed products with their distributor(s)
  • Jan 15 to
  • Feb 15 SFAs commit pounds of bulk products
    to vendors (on annual survey) chosen through
    the procurement process
  • Feb 1 Direct Diversion Agreement between SFA and
    DPI due to DPI

64
Resources and Contacts
  • DPI Website http//dpi.wi.gov/fns/index.html
  • USDA Website http//www.fns.usda.gov/fdd
  • ACDA Recipient Agency Commodity Processing
    Handbook available on the DPI Commodity webpage.
  • DPI Contacts
  • Laura Sime, 608/267-9119, laura.sime_at_dpi.wi.gov
  • Lynne Slack, 608/266-2596, lynne.slack_at_dpi.wi.gov
  • Dino Ante, 608/266-3615, antonio.ante_at_dpi.wi.gov
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