Procurement and
Inventory Management
National Food Service
Management Institute
The University of Mississippi
Objective 1
Identify persons in the food
distribution chain and know how to
communicate with all players in the
chain
FOOD DISTRIBUTION CHAIN
from Grower to School
Growers
Manufacturers
Distributor buying
group
Broker/sales rep
Distributors
School/district purchasing co-op
End users
UNIT 2 - Chapter 3 - 1
Types of Distributors
•
Full or broadline
•
Specialty wholesalers
•
Special breed distributors – restaurant chains
•
Supermarket or wholesale clubs
Current Customer Base
School Foodservice
Health Care
4% Colleges/Universities
Other Commercial
10%
10%
10%
4% Correctional Facilities
2% Other
Non-commercial
Hotels/Lodging
10%
Convenience Stores
10%
40% Restaurants
Restaurants
Convenience Stores
Hotels/Lodging
Today…
We are in a
Seller’s Market.
To Sell Themselves, Schools
Can Emphasize . . .
•
No change in ownership
•
No bankruptcy
•
Fair pricing process
•
Early week delivery
•
No deliveries on major holidays
•
School district profile
Objective 2
Describe the role of ethics in procurement
Unethical Behavior
•
•
•
•
Providing cost information
to competitor PRIOR to
supplier selection
Sharing supplier’s proprietary information
with competitor
Accepting gifts or cash
Accepting free trips or entertainment
Ethics Rule of Thumb:
“If you question an action, then
you should not proceed.”
Objective 3
Identify federal, state, and local
procurement regulations, policies, and
procedures governing all school
nutrition program purchases
Procurement Guidelines
What are they?
• Federal Standards
• State Standards
• Local Standards
Which do you use?
• Most restrictive
Federal Regulations
•
•
•
•
•
•
7 CFR Section 3016
http://www.access.gpo.gov/cgibin/cfrassemble.cgi
$100,000–Use formal purchase method OR
state requirement if less
No geographic preference allowed
Vendor who writes specs cannot offer price
Cost plus a percentage of cost NOT allowed
Federal Regulations
•
•
•
•
•
Only responsible contractors
Open and free competition
Written selection procedures
Staff may NOT accept cash or gifts
Domestic commodities
Food and Drug Administration
Food, Drug, and Cosmetic Act
• Controls labeling of food products
• Prohibits
misbranded food products
adulterated food products
• Establishes standards of identity, quality, and fill
• Nutrition Labeling & Education Act - 1990
USDA Grade Standards
USDA Grade A
USDA Grade B
USDA Grade C
U.S.D.A.
Poultry and Meat Inspections
•
Poultry Products Inspection Act/Wholesome
Poultry Products Act
Prevents misbranded or adulterated poultry
products
•
Meat Inspection Act
Established meat inspection program
U.S.D.A. – Inspection Marks
Processed Meat
Raw Poultry
Raw
Meat
Know Manufacturer’s Code Number
and Establishment Number
U.S. Dept. of Commerce
Fish and Wildlife Act
Est. 036
PUFI Seal
Additional Laws
•
FDA - Public Health Service Act
 Model Food Code
•
U.S. Customs Service - Tariff Act
 Labeling of imported foods – “Product of
(country)”
•
U.S. Dept of Justice - Antitrust Laws
 Sherman, Clayton, Robinson-Patman, and Federal
Trade Commission Acts
 Open and free competition
USDA Food Safety and Inspection
Service: Names on Labels
•
•
•
•
Ham - must be at least 20.5% protein in lean
portion as described in 9 CFR 319.104.
Added water is permitted
Ham - water added: The product is at least
17.0% protein with 10% added solution.
Ham with natural juices: The product is at
least 18.5% protein.
Ham Salad: Product must contain at least
35% cooked ham.
Objective 4
Identify various types of
acceptable purchasing systems
Four Purchasing Methods
•
RFQ: Small purchase
procedure
•
IFB: Competitive sealed bids
•
RFP: Request for proposals
•
Noncompetitive negotiation
Sections of a Formal Bid
1. Transmittal & signature pages
2. Standard terms & conditions
3. Special instructions
4. Product list & descriptions
5. Billing address & delivery locations
6. Potential bidders
Line Item Award
Product Name
Potential
Vendor A
Potential
Vendor B
Potential
Vendor C
Peaches
$20.36 low
$22.94
$23.41
Pears
$22.49
$23.95
$22.46 low
Sugar
$19.06
$18.75 low
$21.45
Bottom Line Award
Product
Name
Est.
Units
Unit
Price
Vendor A
Ext.
Total
Unit
Price
Vendor B
Ext.
Total
Unit
Price
Vendor C
Ext.
Total
Peaches
25 cs
$20.19
$504.75
$22.02
$550.50
$21.50
$537.50
Pears
10 cs
$20.94
$209.40
$20.48
$204.80
$21.50
$215.00
Sugar
15 bg
$15.98
$239.70
$16.63
$249.45
$14.10
$211.50
Bottom
line total
$953.85
Low
$1004.75
$964.00
Grouping Categories
For open and free competition,
group by specialists
Bottom Line Categories
Milk
Paper
Frozen, dry &
refrigerated
Bread
Equipment
Produce
Prioritize:
•Money Spent
•Impact on meal quality
Objective 5
Describe how to develop and use
specifications, descriptions, and approved
brands for assembling a food bid
Specifications and Descriptions
Specifications: complicated and lengthy
•May be a couple of pages for one product, labor
intensive
Descriptions: short and measurable
•Limited to those characteristics that are essential
for communication with the supplier such as CN
label
•Can be identified by the receiver and measured at
the point of receipt
Product Classification
One ingredient:
Distributor's choice
One major ingredient:
Private label
Multiple ingredients (highly processed):
Manufacturer’s brand
Distributor’s Choice
NO
Brand Restrictions
sugar
salt
PRIVATE LABELS AND QUALITY
VEGETABLES FRUITS
First
= Extra Fancy
Quality
Fancy
(90-100)
Choice
Second = Extra
Quality
Standard
Standard
(80-90)
Third
= Standard
(70-80)
(80-90)
(70-80)
Substandard Quality
(below 70)
Manufacturer’s Brand
1. High-volume products or products
with quality problems
2. Identify on final bid
Manufacturer
Code #
Establishment #
Maker
42104
Est. # 17842
Sample of Item Classification on
Draft Bid
Item Description
Item Classification
Bid Est.
Unit Units
1516 Chicken, Pat; BR’D;
white meat; NO VPP;
w/dried egg; CN label
verifies 2oz. M/MA; 3 oz
Approved brands only
svg
2200 Peaches, Cling
U.S. Choice; packed in
packed in juice; 6/#10
Private Label
cs
500
6340 Salt, Iodized; 24/26 oz
Distributor’s choice
cs
25
215,639
Brand Approval
TWO APPROVAL SYSTEMS
Brand or
Approved
Equal/No
Brands
Pre-Approved
Brands
Only
Steps: Brand Name or Approved
Equal
1. Write product descriptions.
2. Issue final bid.
3. Open bids.
4. Evaluate bids.
5. Award bids.
Brand decision
made here.
Problems
Brand Names or Approved Equal
•
Decision of comparable quality made
during bid evaluations
•
Bidder allowed to determine “equal”
Approved Brands Only
1. Write product descriptions & develop draft bid.
2. Classify products as
Distributor’s Choice
Private Label
Manufacturer’s Brand
3. Hold individual pre-bid conferences.
Individual Pre-Bid Conference
•
Explain classification system
•
Explain brand pre-approval
•
Request nutritional data & copy of labels of
brands they want screened
•
Discuss test schedule
•
Order product to test
Approved Brands Only
4. Screen brands
Paper screen
Appearance screen
Taste screen
5. Notify potential bidders of screening results
6. Accept alternative to brands that failed
Brand or Approved Equal
7. Screen second group of brands
8. Issue final draft of product/brand list
9. Conduct final pre-bid conference
Brand decisions already made.
10. Issue bid
11. Open all bids in a public meeting
12. Evaluate final bids
13. Award bids to the successful bidder
Testing Product: Phase I
•
•
•
Purpose: choose which formula will be
bid
Products: from SAME manufacturer
Consider:
 Nutritional impact
 Price
 Taste
Major Components of Chicken
Patties or Nuggets
Meat block:
a. Breast, white or breast w/rib
b. Chicken , natural proportion
c. Dark meat
Egg: Dried whole egg
Vegetable protein product (VPP):
a. Flour
b. Concentrate
c. Isolate
Testing Product: Phase II
•
Purpose: approve brands of the SAME
formula
• Products: from DIFFERENT manufacturers
• Consider:
 Nutritional comparability
 Appearance
 Taste
Taste Test Rules
•
•
•
•
•
•
•
Product delivered in full-case, sealed
container
Students rate product
Part of regular meal
Prepared in typical equipment
Test only one product per day
Allow NO company representatives
Do NOT disclose brand name
Final Bid
Item Description
Item Classification
Bid Est.
Unit Units
1516 Chicken Nuggets;
Br’d; white meat; NO
VPP;
w/dried egg; CN label
verifies 2 oz M/MA; 3 oz
min. weight
Whip-O-Will Farms 60150
Est # P-246
Variety 2543 Est # P-2543;
Chickly Foods 10821 Est #
P-399
svg
2200 Peaches, Cling
U.S. Choice; packed in
juice; 6/#10
Private Label
cs
500
6340 Salt, Iodized; 24/26 oz
Distributor’s choice
cs
25
215,639
Request for Proposal (RFP)
•
Allows evaluation of variables other
than cost
•
Cost should exceed 50% of total
points
RFP Evaluation
Evaluator name
MAX. PTS
ALLOWED
CRITERIA
1. Bottom Line Figure
55
2. Service
20
3. Available technical support
10
4. Availability of parts
10
5. History of reliability
5
TOTAL
100
SCORE
AWARDED
RFP Budget Evaluation
Maximum: 55 points
Two responses: $4,000 and $5,000
$4,000 = 55 points
$4,000  $5,000 = 80%
80% of 55 points = 44 points
$5,000 = 44 points
Direct to Manufacturer
• Sealed bids
• Line item for most products
• Firm price with petition for
escalation/de-escalation
• Requires a bid for distribution
Objective 6
Identify the basic types of pricing
mechanisms
Pricing Mechanisms
1. Firm for duration of contract
2. Market–Escalation/Deescalation
3. Cost + Fixed Fee
Fee may not increase duration of
contract including extension
Monitored based on Market
Objective 7
Describe how to develop a critical
path plan for procurement
To Develop a Critical Path
•
Determine delivery time
•
Complete time needed for each task
•
Start with delivery date & work back to
beginning date
•
Minimum of 36 weeks required
Evaluation/Re-evaluation
Objective 8
State the basics of receiving and inventory
management
Receiving is . . .
. . . the critical link in procurement
and food quality
Personnel Training
•
•
•
•
•
Inspecting deliveries using district receiving
procedures
Taking food temperatures
Reading food labels
Following district clerical
procedures
Reporting product quality problems
Storage Guidelines
•
•
•
•
•
•
•
•
Use FIFO
Store in original packaging
Separate raw from cooked or ready-to-eat foods
Store min. of 6” off floor and away from wall
Keep areas clean and dry
Inspect and treat regularly for pests
Use clean equipment to transport
Store in appropriate area.
Inventory and Cost Control
•
Inventory is a major component of cost
control
•
JIT (Just-in-Time) deliveries
•
Limit days food supplies are in inventory
•
Excess inventory = $ tied up
Seven-Day Inventory
Formula:
(
_____Annual $ for food______
Number of serving days in year
)
X 7
Standard Stock
1. Determine number of cases needed
a. Previous year’s invoices
b. Delivery frequency
2. Change with seasonal foods
3. Add 50% to base amount
4. Develop pre-printed order form
Standard Stock Order Form
Product
Current
Product # Inventory
Standing Adjusted
Order
Order
Individual
catsup
100445
2 cases
10 cases
Individual
mustard
100569
½ case
3 cases
Individual
mayonnaise
100720
½ case
1 case
Dill pickle
208965
1 - 5 gallon
1 - 5 gallon
8 cases
none
Cooperatives
6,000
4,000
23,000
33,000