DIRECT DIVERSION PROCESSING Basic Training Session

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DIRECT DIVERSION PROCESSINGBasic Training Session

• Wednesday
• September 24, 2008
• 1230 to 200 pm

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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

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The Benefits

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

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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.

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Direct Diversion Processing Survey
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Bulk Raw Products List
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Processors Available for Bulk Coarse Beef
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What Do I Have To Do?Where and How Do I Start?
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THE STEPS

• Processors
• Products
• Procurement
• Agreements
• Annual Order
• Order End Products
• Monitoring

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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.

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Products

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

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Summary End Product Data Schedule (SEPDS)
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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.

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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)

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PROCUREMENT

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

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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.

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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).

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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)

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Formal Procurement Methods

• Competitive Sealed Bidding
• Competitive Proposals

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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

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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

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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

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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)

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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.

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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.)

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Value Pass-Through Options

• Sales Refund to Recipient Agency
• Fee for ServiceProcessor
• Fee for ServiceDistributor
• Net Off Invoice (NOI)

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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.

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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

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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

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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

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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.

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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

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Substitutable Donated Foods

• Full Substitution
• Limited Substitution

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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.

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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.

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Non-Substitutable Food

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

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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.

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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.

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Yield Methods

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

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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

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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.

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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.

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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.

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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.

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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.

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Award Selection

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

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AGREEMENTS

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

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DPI/SFA Agreement

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

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Fee for Service Recipient Agency and Distributor
Sample Agreement

• Outlines responsibilities of each party
• Annual agreement
• Invoicing details

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Value Pass Through (NOI) Recipient Agency and
Distributor Sample Agreement

• Annual agreement
• Outlines distributors responsibilities

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DIRECT DIVERSION ANNUAL ORDER PROCESS

• Determine raw pounds to commit.
• Make commitments on annual order.
• View final commitments for upcoming school year.

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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

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Annual Order Period

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

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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.

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Inventory

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

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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.

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Final Commitment

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

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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.

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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.

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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.

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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

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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.

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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

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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