Procurement and Inventory Management. A multi-step process for obtaining the most responsive goods,...

Orientation to School Nutrition Management

Procurement and Inventory Management

A multi-step process for obtaining the most responsive goods, products, or services at the best possible price

Planning, writing specifications, advertising the procurement, awarding the contract, and managing the contract

What Is Procurement?

1. Identify the stakeholders in the school nutrition food chain.

2. Examine the advantages and disadvantages of cycle menus.

3. Recognize key information when forecasting menu items usage.

Objectives

4. Review a mock product description.

5. Identify federal procurement regulations, policies, and procedures governing all school nutrition program purchases.

6. Identify various types of acceptable purchasing methods.

Objectives (cont.)

7. Identify ethical behaviors.

8. Recognize general inventory management practices.

Objectives (final)

Refer to Glossary

Terms and Definitions

School nutrition procurement team

Distributors

Manufacturers

BrokersUSDA (USDA Foods)

Stakeholders

School Food Authority (SFA)

School nutrition director

Managers, the school nutrition staff

Business manager, a procurement officer

School board

School Nutrition Procurement Team

A commercial food company

Sell, deliver, and bill

The merchandiser who sells products made by manufacturers

Distributors

Companies responsible for processing raw food products

Involves processing raw product and pricing finished product

Introduce new products

Manufacturers

Independent sales agents who negotiate sales for manufacturers

Work with food distributors and school nutrition operations

Brokers

Food Distribution Division of USDA’s Food and Nutrition Service

Coordinates the distribution of USDA Foods

Foods account for 15-20 % of the foods in School Nutrition Programs (SNP)

100 percent American grown.

Meet the Meal Pattern requirements.

United States Department of Agriculture (USDA)

A specific role Expect each party to have some basic knowledge

Open communication

Stakeholders’ Expectations

What do school nutrition team, distributors, manufacturers, brokers and USDA expect from the stakeholders?

Stakeholders’ Responsibilities Activity

Driving force that begins the procurement process

Must meet federal guidelines

Menus

Reduce when less than 50 servings or 25 servings in a small school

Use the same product for more than one menu item

Allow only substitutions that have been approved

Stock Keeping Units (SKUs)

Used to prepare the menu items

Identify the specific quantity Menu planning includes: equipment, food costs, cultural food preferences, labor costs, skill levels, environmental friendliness, and the availability of USDA Foods

Standardized Recipes

Cycle Menus Activity

The process of determining future needs by evaluating past performance, present conditions, and future indicators

Provides critical and valuable information

Strengthens the integrity of a bid

Forecasting

Past, Present, Future Activity

Upon request

The distributor— for products purchased during a specific time period

Quantity, the date of purchase, and other valuable information

A tool for forecasting

Velocity Report

Essential for communicating with the supplier

Most single-ingredient foods often only need a brief specification

Do obtain samples and taste test the product

May not be overly restrictive to competition

Writing Product Descriptions

Distributor’s Choice

Private Label

Manufacturer’s Brand

Distinguish by Type of Products

Review key elements in Participant’s Workbook

Review Bean Burrito Mock Product Description

Key Information to Include in Product Description Specifications Activity

What is the description of the product?

Product Description

How should the burrito be packaged?

How big are the cases?

Case Package and Weight

What is the minimum size of the product?

What is the maximum size of the product?

Minimum and Maximum Size

What are the main ingredients?  

Main Ingredients

What other ingredients can be included in the product?

What ingredients are prohibited?

Other Product Ingredients and Prohibited Ingredients

What are the nutritional standards for the product?

Nutritional Standards

Is it necessary for the product to have a CN Label?

What might be an alternative?  

Meal Pattern/CN Labels

How will we determine which company is offering the best price for an acceptable product?

How will the bid unit price be determined for an acceptable product?

Will we consider labor cost?

Unit Award is Made

What are some quality indicators?

Quality Indicators

Free and open competition means that all suppliers are “playing on a level playing field” and have the same opportunity to compete.

Procurement procedures may never unduly restrict or eliminate competition.

Free and Open Competition

Best price for the best quality or service

The method of procurement used must be appropriate to a particular procurement action

All procurements, regardless of dollar value, must be competitive

Why is Competition Important?

NSLP: 7 CFR 210.21

SBP: 7 CFR 220.16

Uniform Administrative Requirements for Procurement

State/local governments: 7 CFR 3016.36

Non-profits: 7 CFR 3019.44

Where Do I Find the Requirements When Conducting Procurements?

Informal

Formal

Procurement Methods

Federal is $150,000—must adhere to the most restrictive — lowest limit set

Relatively simple

Price or rate quotations from adequate number of qualified sources ◦Good practice: obtain in writing, three

sources who are eligible, able, and willing to provide the product or service

Informal procurement (small purchase threshold)

Estimated value of the procurement contract

More rigorous and prescriptive

Formal Procurement Methods

Invitation for Bid (IFB)◦Competitive Sealed Bidding (IFB)

Request for Proposal (RFP)◦Competitive Negotiation (RFP)

Formal Procurement

Bids/Proposals Must:

◦Be publicly solicited

◦Provide procedural guidance on how to submit a bid or proposal

◦Allow for detailed descriptions

◦Describe technical and cost factors

◦Document why the winning company was awarded the contract

Procurement Musts

Clear, concise specifications

Describes the minimum standards expected of a responsible bidder in measurable terms

Adequate number of known suppliers, providing them with sufficient time to respond

What Is Competitive Sealed Bidding (IFB)?

Complete specifications or descriptions of the product or service are available

Responsive bids — price

More than one qualified source

When Is Competitive Sealed Bidding (IFB) Used?

Competitive negotiation = competitive

proposal

Procurement cannot be adequately described

Scope of the services cannot be clearly

defined

Evaluation factors

Publicized

Fixed-price or cost-reimbursable

What Is Competitive Negotiation (RFP)?

Describes specifications and requirements

Any other conditions that bidders must meet

Expectations can be identified

When Is Competitive Negotiation (RFP) Used?

More than one method can be used to achieve desired outcome

Measure and document —not just price

When Is Competitive Negotiation (RFP) Used? (cont.)

The law prohibits breaking up bids to smaller units (keeping individual purchases under the small purchase threshold) in order to avoid the competitive sealed bidding process.

Keep in Mind…

There may be instances, i.e. milk and bread

Fresh produce may be considered a separate market

“Harvest Week”

Sometimes, However…

No

For formal purchasing, an SFA must decide if the solicitation will result in a:◦Fixed Price Contract (IFB or RFP) or

◦Cost Reimbursable Contract (only RFP).

Do the Procurement Methods Result in the Same Contract Types?

An agreed upon amount that is fixed at the inception of the contract

A firm-fixed-price contract provides a stated price that is fixed without any upward or downward adjustment for the duration of the contract, including for all renewal periods

May contain an economic price adjustment tied to an appropriate index

Fixed Price Contract

Formal, legally enforceable contract that reimburses the contractor for costs incurred under the contract.

Does not provide for any other payment to the contractor.

Allowable costs will be paid from the nonprofit school food service account.

Net all discounts, rebates, and other applicable credits.

Cost Reimbursable Contract

Why are cost plus a percentage of cost contracts not allowed?

Procurement Trivia Question

Can be defined as the moral standards individuals use to guide decisions in their personal and professional lives

Practices that promote free and open competition

Accurate documentation is important to demonstrate compliance

Ethical violations in the workplace are a serious matter

Ethics

While attending a political fundraiser, you mention a distributor’s name to one of your long-time distributors. You share with your long time distributor that you heard the other distributor was releasing a new product. You say you can only remember bits and pieces of what the distributor told you and he mentioned it was something about “proprietary information.”

Is This Ethical? #1

Federal guidelines mandate procurements must be competitive.

Don’t mention a distributor’s name to another distributor or share proprietary information.

Don’t show preference to— allow pressure from management connections.

Free and Open Competition

Don’t give preference based on long-term relationships.

Don’t give preference to suppliers.

Don’t allow political connections to influence award.

Free and Open Competition (Cont.)

A vendor tells you there is a special on whole grain-rich dinner rolls. He states the rolls meet the USDA whole-grain rich criteria. The rolls will only be offered at a special price on Thursday. To receive the special price you will need to attend a luncheon hosted by the vendor and purchase the rolls during this time.

Is this Ethical? #2

Establishing and understanding the parameters

Attending supplier-hosted events —no obligation

The impression of impropriety

Supplier Relations

A vendor has learned of your that you purchased a new home and sends you a new house-warming gift. You take it home and it looks beautiful on your fireplace mantle. How did he know exactly what to buy? You can’t wait to thank him the next time you place an order.

Is this Ethical? #3

A gift is anything of monetary value, including food, meals, travel, or entertainment.

Refer to district’s policy.

If there is a doubt—then do not accept it.

Gifts and Gratuities

Your son calls and says he will need a new track uniform and money to purchase a $200 pair of tennis shoes. You tell him the shoes are not in the budget. A vendor over hears the conversation and offers you a loan. You accept the offer and plan to pay him back in the near future.

Is this Ethical? #4

Soliciting or accepting money, loans, credits, prejudicial discounts, or services

Never lend money to or borrow money from suppliers!

Monetary Dealings

A vendor indicates the product you purchased is eligible for a manufacturer’s rebate. When you review your invoice you do not see the rebate. After contacting the vendor you learn he “totally forgot” to process the rebate and the offer is no longer available. He states he will give you free product valued at the dollar amount of the rebate.

Is this Ethical? #5

Offset expenses and act as a purchasing incentive

Need to be taken directly off the invoice which can serve as your documentation

Legitimate Discounts, Rebates, or Credits

A conflict of interest occurs when the individual involved in the decision-making process or someone close to this individual benefits by signing the contract.

Examples: ◦ The company bidding on a contract with your school

district is owned by your personal friend, relative, or school board member.

◦ You own stock in the company.◦ Your friend or relative is an employee at the company

in a position where they would profit from gaining the contract.

Conflicts of Interest

Providing confidential information of any kind to any person or entity that was not designated to be privy to that information is considered unethical.

Confidentiality

• Inventory is the value of food and supplies on hand, whether at the food preparation site or in a central warehouse or facility.

• Effective inventory management is essential for managing and controlling costs.

Inventory Management

Knowing your food needs

Knowing where and how much food you have on hand

Controlling waste, loss and theftMaintaining only as much as you need

Key Steps

Identify Inventory Management Best Practices—Activity

• Calculating food needed to purchase = food needed for a recipe or service

• As Purchased (AP) refers to the weight of the product as it exists when purchased.

• Edible Portion (EP) refers to the part of the product that can be consumed.

Key Step: Understanding How Much Food You Need

USDA Food Buying Guide resource http://www.fns.usda.gov/tn/resources/foodbuyingguide.html

USDA Food Buying Guide Calculatorhttp://www.nfsmi.org/ResourceOverview.aspx?ID=400

Food Buying Guide

Storage areas should appropriately hold goods under proper conditions to assure

quality and safety until time of use (prevents spoilage/loss).

Storage Area Organization

Order only food needed for menu production.

Store food properly.

Control portions.

Plan to utilize leftovers.

Survey students—determine menu preference.

Present food in appealing manner.

Equip coolers and freezers with an alarm system.

Controlling Waste

Implement procedures to prevent:◦Customer theft◦Employee theft◦Vendor theft

Implement key and lock control

Theft & Fraud Prevention

When products are delivered once a week or more often, it is called Just-in-Time (JIT) delivery.

Advantages: reduced inventory, reduced costs, reduced paperwork, and limited space

Inventory Just-in-Time (JIT)

A par stock is established through a thorough evaluation of product use over the amount of time between deliveries.

For example, if you have weekly deliveries and know you use three cases of fresh, sliced, onions a week, you would always want three cases of onions in inventory.

Par Stock

The First-in-First-Out (FIFO) rotation system is the process of rotating the older product to the front and the newer items to the back of the shelf.

First-In-First-Out (FIFO)

Inventory may be scattered throughout the schools, or in a number of district-owned warehouses

What should be in inventory, but projections of usage for a recent period may have been more or less than actual usage

Assess Current Inventories and Orders On Hand

National Food Service Management Institute

www.nfsmi.org

800-321-3054

Thank You!