Title: DIRECT DIVERSION PROCESSING Detailed Training Session
1DIRECT DIVERSION PROCESSINGDetailed Training
Session
- Wednesday
- October 1, 2008
- 100 to 330 pm
2What 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. - Regardless of which processing option selected,
brown box commodities are available to all
schools placing an annual order.
3The Benefits
- Increase participation
- More variety
- School-specific products
- Consistent product
- (commodity commercial)
- Potential savings on storage costs
4How 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.
5Direct Diversion Processing Survey
6Bulk Raw Products List
7Processors Available for Bulk Coarse Beef
8What Do I Have To Do?Where and How Do I Start?
9THE STEPS
- Processors
- Products
- Procurement
- Agreements
- Annual Order
- Order End Products
- Monitoring
10PROCESSORS
- Who are the eligible processors for Wisconsin?
- USDA approves multi-state processors on a
national level. DPI uses the USDA approved list
as a starting point for who is eligible to
participate. - 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.
11Products
- What products are available for your program?
- 1) Processors Summary End Product Data
Schedules - 2) Annual Food Show
12Summary End Product Data Schedule (SEPDS)
13SEPDS A B
- SEPDS A is for all donated foods excluding
Guaranteed Minimum Return. - Relevant columns A, E, F and H
- SEPDS B is for meat and poultry processed under
Guaranteed Minimum Return. - Relevant columns A, E, G, H
14SEPDS
- Please Note The commodity values are updated
annually by USDA. The new commodity values are
released on November 15th 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.
15Products
- How many approximate 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)
16PROCUREMENT
- Informal and formal procurement methods are
established practices, appropriate for the
acquisition, that are followed consistently. - Determine which method you must use.
17Informal 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.
18Informal Procurement
- Splitting purchases into segments less than
100,000 does not permit school to use the
informal purchase method (i.e., three purchases
of 40,000 each which are paid for with
non-profit program dollars). - Written price quotations are obtained from all
applicable processors who are on the DPI
Eligible Processors List.
19Informal Procurement
- Solicitation documents need not be complex but
must provide sufficient information to permit an
eligible processor to respond. - At a minimum, this must include
- A description of the products needed, including
quantity. - The date by which the products must be provided.
- Any other pertinent requirements.
20Formal 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).
21Formal Procurement Methods
- Competitive Sealed Bidding
- Competitive Proposals
22Competitive 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
23Competitive 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
24Procurement Options
- When working with processors to determine
finished end products, determination can be
arrived at by one of the following methods - School indicates in procurement documents the
generic product specification (no brand
specified). Brand is selected during the final
phase of the procurement process. - School uses the branding process to pre-approve
acceptable brands to include in procurement
documents. For details on this procurement
method, visit the National Food Service
Management Institute (NFSMI) website at
http//www.nfsmi.org/ResourceOverview.aspx?ID64
25Procurement Recommendations
- Offer a bid (formal or informal) or RFP that has
the potential for renewal for a set time period.
Typically the bid is for one year with the
potential for two one-year renewals. This
reduces the number of bids generated and allows
the school and manufacturer to develop a
long-term relationship.
26Procurement Recommendations (contd.)
- Have the bid opening on any day except Monday.
- Have the bid opening anytime after 100 p.m.
Federal Express will not guarantee delivery
before 1030 a.m. - Consult your school calendar to make sure your
school will be open on the day of the bid
opening.
27Procurement Recommendations (contd.)
- Allow the manufacturers adequate time to complete
the bid (minimum of three weeks). - Clearly indicate where manufacturer will ship
finished product (i.e., commercial distributor,
school warehouse, etc.). - Clearly list the factors that will be used to
determine the winner of the bid. Indicate how
and when the manufacturers will be notified of
who was awarded the bid.
28Procurement Tools
- RA ACDA Commodity Processing Handbook
- Direct Diversion Product Specification Samples
- Direct Diversion Procurement Worksheet Samples
29What additional direct diversion-specific
information do I need to include in my
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
- Procurement Sample Language
30What 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)
31What Information Do I Require the Vendor to
Include in Their Submission? (contd)
- Minimum run requirements, if applicable.
- Minimum delivery requirements, if applicable.
- The meal pattern contribution per serving
- Summary End Product Data Schedule (SEPDS)
32Delivery of End Products
- All direct diversion processed products cannot
come through the state-contracted warehouses and
delivery system. - Direct diversion schools can still get brown box
commodities through the state-contracted delivery
system. - School must ensure that theyve addressed
delivery needs as a part of the procurement
process.
33Delivery of End Products (contd)
- It is necessary to include your desired direct
diversion end products in your commodity
commercial distribution procurement process. -
- The commodity delivery portion of your
procurement process must be completed prior to
the annual order time period. This will help to
ensure - that your bulk pound commitments made on the
annual commodity order are accurate. - that you will be able to order and receive the
desired finished end products from your
distributor. - It may be necessary to coordinate the distributor
bid for your commercial products with your bid
for direct diversion products.
34What 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.)
35Value Pass-Through Options
- Sales Rebate to Recipient Agency
- Fee for ServiceProcessor
- Fee for ServiceDistributor
- Net Off Invoice (NOI)
36Sales Rebate
- DirectProcessor sells end product directly to RA
and invoices RA at gross price. RA applies for
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 rebate from processor. -
- Commercial price Your price
- (school applies for a rebate monthly)
-
37Sales Rebate (Indirect) Example
- School A purchases pizzas from distributor and
pays gross price of 32 per case. Entitlement
value per case of pizza purchased is 3.50. - School A files rebate to processor for the 3.50
entitlement value per case of product purchased. - Schools actual net cost per case is 28.50 (32
- 3.50).
38Fee 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
39Fee for ServiceProcessor Example
- Processors cost of non-commodity ingredients,
labor, packaging, overhead and other costs is 22
per case of pork taco filling. - The entitlement value per case of pork taco
filling is 12. - The 22 processing fee takes into account that
processor will use 12 worth of donated food to
make the taco filling. - School A will be invoiced by processor 22 per
case of pork taco filling.
40Fee 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 distributors fees Your Price
41Fee for ServiceDistributor Example
- Processors cost of non-commodity ingredients,
labor, packaging, overhead and other costs is 22
per case of pork taco filling. - Distributors handling/storage fee is 3 per case
of pork taco filling. - The entitlement value per case of pork taco
filling is 12. - The 22 processing fee takes into account that
processor will use 12 worth of donated food to
make the taco filling. - School A will be invoiced by distributor 25 per
case of pork taco filling (22 3).
42Net 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
43Net Off Invoice (NOI) Example
- Processor sells case of chicken nuggets to
distributor for 30 per case. -
- Distributors handling/storage fee is 3 per case
of chicken nuggets. - The entitlement value per case of chicken nuggets
is 10. - School A will be invoiced by distributor 23 per
case of chicken nuggets (30 3 - 10). - Distributor will claim a credit to the processor
for the 10 entitlement value per case of chicken
nuggets.
44Why Do I Need to Know Value Pass Through Methods?
- Not all processors do all methods.
- During the bid process, SFAs need to indicate in
their bid which method(s) they are requesting
pricing for. - For monitoring purposes, SFAs need to ensure
they are receiving the full value of donated food
back.
45What is A Substitutable Donated Food?
- In commodity processing, all bulk donated foods
offered by USDA to distributing agencies fall
into one of the following categories - 1) substitutable
- 2) non-substitutable
46Substitutable Donated Foods
- Full Substitution
- Limited Substitution
47Full Substitution
- A processor can substitute commercial food for
bulk commodity foods without restriction, so long
as the substitute food is of the same generic
identity, equal or better quality, and of
domestic origin. The exception to this is bulk
beef, pork and poultry on a limited approval
basis. - Fully substitutable foods are subject to the 100
yield requirements.
48Full Substitution Example
- Cheese Processor XYZ will be receiving two trucks
of mozzarella cheese for Wisconsins direct
diversion schools. - Cheese is fully substitutable. Therefore, Cheese
Processor XYZ can use commercial bulk cheese to
produce Wisconsin schools finished end products. - Benefit school can receive finished end product
regardless of whether bulk commodity has arrived
at processors warehouse.
49Limited Substitution
- The substitution of commercial product for bulk
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.
50Limited Substitution Example
- Chicken Processor 123 will be receiving five
trucks of bulk chicken for Wisconsins direct
diversion schools. - Chicken Processor also processes bulk chicken for
Ohio, Texas and Oklahoma. - Wisconsins trucks have not arrived at
processors facility however, processor has
received some trucks for Ohio.
51Limited Substitution Example (contd)
- Processor uses an Ohio truck of bulk chicken to
produce some of Wisconsins orders. Therefore,
Wisconsin schools can receive finished end
products prior to Wisconsin bulk chicken arriving
at processors facility. - When Wisconsins truck of bulk chicken arrives,
it is then used for Ohios processing.
52Non-Substitutable Food
- A USDA donated food that cannot be substituted
with a commercially purchased product under the
terms of a processing agreement. - Processor cannot produce finished end products
until the Wisconsin bulk truck arrives at
processors facility. - Schools can not receive finished end products
until processor receives bulk truck.
53Why 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.
54What is Yield?
- The amount of finished end product returned for a
defined amount of bulk raw commodity sent to a
processor.
55Yield Methods
- 100 Yield
- Guaranteed Minimum Return (GMR/GMY)
- Standard Yield (SY)
- Guaranteed Return (GR)
56100 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.
57100 Yield Example
- School A commits 120 pounds of bulk cheese to
Cheese Processor XYZ. - School A purchases pizza product B that contains
12 pounds of bulk cheese per case. Product B is
the only item that School A will purchase from
Cheese Processor XYZ. - School A will receive 10 cases of Product B
containing the 120 pounds of bulk cheese. - Cheese Processor XYZ does not have any
manufacturing loss.
58Guaranteed 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.
59Guaranteed Minimum Return Example
- Turkey Processor H has completed SEPDS B and
indicated in Column G Estimated Cases of
Finished Product Per Truckload that 725 cases of
sliced oven roasted turkey will be produced.
This is Processor Hs guaranteed minimum return. - Processor H overyields and actually produces 800
cases from one truckload of bulk turkey. -
- Therefore, schools receiving this product from
this bulk truck will all receive a fair share of
the 75 cases overyield.
60Standard 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.
Therefore, products processed under standard
yield will have a higher per case price.
61Standard Yield Example
- Chicken Processor 123 is processing chicken
nuggets under standard yield. - Processor 123 has completed SEPDS A and Column F
indicates 25 pounds donated food inventory
drawdown per case. - For every 25 pounds of bulk chicken committed,
school receives one case of chicken nuggets. - There are no overyields or underyields.
62Guaranteed Return
- A red meat processing option
- Specifies an exact number of finished cases that
will be returned to the RA from the processor.
63Guaranteed Return Example
- Beef Processor STR is processing beef patties
under guaranteed return. - Processor STR has completed SEPDS A and Column F
indicates 20 pounds donated food inventory
drawdown per case. - For every 20 pounds of bulk beef committed,
school receives one case of beef patties. - There are no overyields or underyields.
64Why Do I Need to Know Yield Methods?
- Schools need this information for evaluation of
IFB/RFP. - Schools need to know the various methods for
monitoring, to ensure receipt of full commodity
value.
65Conducting 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.
66Evaluation of IFB/RFP
- Yield will affect number of finished cases
received. - Therefore, part of the price evaluation process
should factor in yield method. This can be
accomplished by including entitlement value per
case and converting to a per serving price. - For example, Processor A submits pricing for
turkey breast using GMR and Processor B submits
pricing for turkey breast using SY.
67Evaluation Example
- Processor A, 101 servings per case
- 14.20 processing fee/case
- 20.19 entitlement value/case
- 34.39 total cost .3404 per serving
-
- Processor B, 96 servings per case
- 16.50 processing fee/case
- 16.44 entitlement value/case
- 32.94 total cost .3431 per serving
68Award IFB/RFP
- The final step of the procurement process is
awarding the processing IFB/RFP. - Part of the award process should include
notification to all processors regarding who was
awarded IFB/RFP.
69AGREEMENTS
- DPI/SFA Agreement
- Fees for Service Recipient Agency and Distributor
Sample Agreement - Value Pass Through (NOI) Recipient Agency and
Distributor Sample Agreement
70DPI/SFA Agreement
- Due back to DPI by February 1
- Annual agreement
- Prep/joint language
- FSMC/Vendor language
- Agreement available on DPI/Commodity webpage
71Fee for Service Recipient Agency and Distributor
Sample Agreement
- Outlines responsibilities of each party
- Annual agreement
- Invoicing details
72Value Pass Through (NOI) Recipient Agency and
Distributor Sample Agreement
- Annual agreement
- Outlines distributors responsibilities
73DIRECT DIVERSION ANNUAL ORDER PROCESS
- Based on procurement awards, determine actual raw
pound commitments to each processor. - Make commitments on annual order, January 15 to
February 15. - Some time in April or May, schools can view final
commitments for upcoming school year.
74Determining Actual Raw Pound Commitments
- 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
1,100 pounds
75Determining Raw Pounds
- Direct Diversion Processing Step-By-Step Guide
- Direct Diversion Processing Step-By-Step Samples
76Inventory
- 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.
77Inventory
- USDA Policy FD-040 explains inventory draw down
for each value pass through method. - DPI Inventory Carryover Policy.
78Shortages/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.
79Final Commitment
- In April/May, schools can view final commitments
ordered for each processor. - Adjustments may have been made by DPI to schools
initial commitments.
80ORDER 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.
81ORDER END PRODUCTS
- Minimum production run requirements apply at the
processor level. - Minimum drop requirements apply at the
distribution level. - Remember, none of the direct diversion processed
products come through the state-contracted
warehouse.
82MONITORING
- 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
83MONITORING (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
84Monitoring (Sales Verification)
- As required by USDA, schools must participate in
sales verification for all NOI processing. - Many processors use an electronic sales
verification program. - Refer to ACDA RA Commodity Processing Handbook,
page 12 for specific details.
85Invoicing
- 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.
86Direct 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 26 Food show with all interested direct
diversion processors for all potential direct
diversion schools - 1st part Oct Direct Diversion training
session(s) - 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
87Resources 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.state.wi.
us - Lynne Slack, 608/266-2596, lynne.slack_at_dpi.state.w
i.us - Dino Ante, 608/266-3615, antonio.ante_at_dpi.state.wi
.us