DIRECT DIVERSION PROCESSING Basic Training Session

1. DIRECT DIVERSION PROCESSINGBasic Training Session Wednesday September 24, 2008 12:30 to 2:00 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 elements—technical 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? Manufacturer’s 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 they’ve 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 Service—Processor Fee for Service—Distributor Net Off Invoice (NOI)

27. Sales Refund Direct—Processor 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. Indirect—Processor 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 Service—Processor 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 Service—Distributor Distributor invoices RA for the cost of the processed product and distributor handling/storage fees. Price represents a processor’s 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 processor’s 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 distributor’s 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 (Cont’d.) 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@dpi.wi.gov Lynne Slack, 608/266-2596, lynne.slack@dpi.wi.gov Dino Ante, 608/266-3615, antonio.ante@dpi.wi.gov