There are three questions that must be answered before an effective purchasing system can be established: Should the school district join in a cooperative or group purchasing arrangement to pool buying power? What will be the drop size or how many items will the vendor deliver, and how will prices be submitted on the purchasing contract? This issue of INSIGHT addresses factors to be considered in answering these three questions as well as relating how achievement of the Dietary Guidelines places special considerations on the purchasing process. Resources developed to help you become a more skillful purchaser also are mentioned.
RESEARCH
The National Food Service Management Institute (NFSMI) sponsored research
that analyzed purchasing systems commonly used in Child Nutrition Programs
(CNPs). This study looked at several aspects of the traditional bid and
cost-plus-fixed-fee purchasing systems. The researchers also investigated
the cooperative method to administer purchasing systems.
PURCHASING DECISIONS
Each school district has the authority to establish its own purchasing
system within a few firm guidelines from the federal government. The purchase
system must ensure free and open competition among vendors. There must
be written specifications for all products purchased, and instructions
provided all potential vendors must be identical. Items costing over $10,000
overall must be formally bid, and cost-plus-a-percentage-of-purchase is
not an allowable system. These guidelines exist to ensure that taxpayer
dollars are used prudently and that there is fair competition among vendors
for federal dollars.
Other decisions are left to the discretion of the school foodservice director/supervisor and the school district. When establishing a purchasing system, three questions need to be answered: Should the school district join in a cooperative or group purchasing arrangement to pool buying power? What will be the drop size or how many items will the vendors deliver? How will prices be submitted on a purchasing contract?
COOPERATIVE PURCHASING
A purchasing cooperative offers many advantages especially for small and
medium-sized school districts. Cooperatives pool buying capacity by negotiating
purchasing contracts as one, cooperative buying agency. Vendors are much
more likely to "sharpen their pencils" and compete aggressively
for the business of several districts than for yours alone. Combined buying
power may even influence what is available in the marketplace. Cooperatives
also pool the knowledge of buyers who can learn from one another. Each
member of a purchasing cooperative brings to the team a knowledge of products
and vendor reliability for the collective benefit of all. Members of the
cooperative team also have different skills that will help the total effort;
for example, a registered dietitian who is a school foodservice director
can help the group interpret the nutritional content of convenience food
products. This would be particularly helpful when you are trying to evaluate
manufacturers' products in relation to the Dietary Guidelines for Americans
(DGAs).
Joining a cooperative will make it necessary to be flexible and to compromise for the benefit of the total group. Members of a cooperative must agree on the description of products to be purchased and other stipulations in the purchasing contract. This may mean that the pack size or product specifications will change to meet the desires of most, and some members of the cooperative will have to compromise because the team makes decisions for the benefit of the whole group.
The basic philosophy is to provide a winning situation for school districts, food manufacturers, and food distributors. Improved quality, service, and the potential for reduced costs are the benefits school districts acquire. The NFSMI study found that school districts using a purchasing cooperative incurred the least cost for the food items monitored. Identifying customers that purchase in volume is important to manufacturers. Minimizing styles of products that must be stocked and completing fewer bids reduce distributors' costs.
DROP SIZE DETERMINATION
Regardless whether your decision is to purchase through a cooperative or
to maintain single district purchasing, effective purchasing establishes
prudent use of school district funds. The traditional system for food purchases
involves several elements. Product specifications are required along with
detailed instructions to potential vendors on how the prices are to be
submitted. If formal bids are used, the invitation to bid must be publically
advertised. Price quotes are submitted in writing, and documentation of
prices is required. Awarding the bid to specific vendors is based on two
methods of calculating or considering price. This calculation determines
the drop size or the amount of merchandise any one vendor delivers to the
schools.
The cost of delivery is almost the same whether one case or 50 cases are delivered. Line item awards offer the distributor no guarantee concerning the number of cases that will be delivered. School districts frequently receive notices that distributors are placing a minimum invoice amount on all deliveries. Bottomline bid awards make your business more attractive to distributors because the system guarantees increased drop size. Indirect costs such as the cost of processing purchase orders, receiving, and invoice processing also go down with bottomline awarding of bids.
Achievement of the DGAs places increased emphasis on quality fresh produce. Bottomline awards for fresh produce are very appropriate. Delivering fresh product in good condition requires a continuous chilled environment. In many areas of the country the only types of delivery trucks available are equipped for dry or dry and frozen product. Schools may have to consider changing to bottomline awards for fresh produce and requiring refrigerated delivery equipment.
PRICING
Once you have decided how bids will be awarded to determine drop size,
you must decide how the bidder will submit the price. There are two pricing
types: firm prices for a specified time and changing prices based on the
distributor's cost. The pricing system chosen by the school district establishes
the degree of risk vendors must take when quoting prices. The greater the
period requested for firm prices, the greater the risk. The greater the
risk, the higher the prices quoted because wholesalers need to cover or
"hedge against" rising prices when they go into the marketplace
to purchase food and supplies over a longer period.
If your school district chooses firm pricing, then the length of the bid period should be carefully considered. Remember, the longer the firm price is requested, the higher the cost. You could consider putting a clause in the bidding instructions that would protect the vendor from unexpected cost increases. The vendor could provide proof from an objective source, such as a market bulletin, of a substantial price increase. The school district could agree to stop purchasing the item, or release the vendor from the contract and obtain new price quotes for the item. Sometimes contracts are written to provide an escalating price based on the market. Milk contracts are a prime example where the price is allowed to vary based on wholesale prices of milk plus an agreed-upon markup. The wholesale prices should be specific to your geographical region. These examples illustrate the principle that schools need distributors who sell and deliver food to stay in business, and companies are in business to make a profit. Taking reasonable measures to protect both school districts and distributors creates mutually beneficial situations.
This approach to bid pricing allows schools to award long term contracts with vendors. The paper work costs to the school districts are decreased while at the same time the vendors' risks associated with firm pricing are not increased. Longer term contracts allow schools to provide their customers with a more consistent product for a longer period.
IMPLEMENTING THE DGAs
Recent federal regulations have made the achievement of the Dietary Guidelines
for Americans more than a professional goal; it is a government mandate.
Carrying out the DGAs begins with an understanding of purchasing food according
to menus structured to meet nutritional goals. Variety and choice in each
meal component category are equally important. Incorporating whole grain
products, fresh fruits, and vegetables into the menu is a cornerstone of
DGA implementation, and the purchase of quality produce presents many challenges
despite the purchasing system used in the school district. Ready-prepared
items on the menu require even closer scrutiny through tight product specifications
stipulating protein, fat, sodium , and caloric content.
no benchmarks exist for nutritional quality of school meals in relation to the DGAs, eating habits of many children are inconsistent with the DGAs, and limited time is available for food service personnel to evaluate products, develop new recipes, and compare products.
The participants also rated the following training needs as important to very important in relation to implementing the DGAs: how to evaluate the nutritional content of a food product, writing food specifications, including developing model specifications, procedures for various methods of purchasing, and receiving procedures.
Since the conference, the NFSMI has engaged in research and training activities consistent with the recommendations from this conference. Conference proceedings were published to provide written documentation of the 14 papers presented. The NFSMI staff also wrote and produced a video with training materials on "Purchasing and the Dietary Guidelines." The newest release will be First Choice: A Purchasing Systems Manual for School Food Service which will be published this fall together with workshops to help school foodservice directors/supervisors make crucial decisions about purchasing in their district. All of these resource materials are listed in the final section of this publication.
FOR MORE INFORMATION
Boudreaux, L.J., & Oldenquist, J.A. (1996). The effectiveness of the
Mississippi State Department of Education purchasing program for Child
Nutrition Programs. School Food Service Research Review, (accepted for
publication).
DeBurgh, R. K. (1994, November). C-o-o-p is not a four-letter word: Spelling out the benefits of co-op, School Business Affairs, 15-18.
Heimstra, S.J., & Jaffe, W. (1996). Cost effectiveness of three purchasing systems. School Food Service Research Review, (accepted for publication).
Gregoire, M.B., & Sneed, J. (1993). Barriers and needs related to procurement and implementation of the Dietary Guidelines. School Food Service Research Review, 17, 46-49.
Gunn, M. (1993). Cooperation and commitment improves foodservice purchasing. School Business Affairs, 59, 14-17.
Gunn, M. (1995). First choice: A purchasing systems manual for school food service, NFSMI-R19- 95, University, MS: National Food Service Management Institute.
Gunn, M. (1992). Professional in purchasing. School Food Service Journal, 46(9), 32-34.
NFSMI. Purchasing and the Dietary Guidelines, TT092392, University, MS: author.
Sneed, J., & Gregoire, M.B. (eds.) (1992). Impact of food procurement on the implementation of the Dietary Guidelines for Americans in Child Nutrition Programs, NFSMI-R5-1992, University, MS: National Food Service Management Institute.
United States Department of Agriculture. (1996, in press). CHoice Plus: A food and ingredient reference guide. Washington, D.C.: Superintendent of Documents.
Author: Martha T. Conklin, PhD, RD. Dr. Conklin is Director of Applied Research, NFSMI, The University of Southern Mississippi, Hattiesburg, MS.
Acknowledgements: The author wishes to acknowledge the review of this manuscript by Marlene Gunn, RD of Marlene Gunn & Associates, Corinth, MS.
Editor: Mary Frances Nettles, PhD, RD. Dr. Nettles is Research Scientist, NFSMI, Division of Applied Research, The University of Southern Mississippi, Hattiesburg, MS.
This project has been funded at least in part with Federal funds from the U.S. Department of Agriculture, Food and Consumer Service under grant #F33385 to the University of Mississippi. The contents of this publication do not necessarily reflect the views or policies of the U.S. Department of Agriculture, nor does mention of trade names, commercial products, or organizations imply endorsement by the U.S. Government.
The University of Mississippi is an Affirmative Action/Equal Opportunity Employer
and does not discriminate on the basis of age, race, color, sex,
pregnancy, religion, marital status, national origin, disabilities, or status
as disabled or Vietnam-era veteran.
AA/EOE/ADAI
Updated 9/24/01 | Contact NFSMI Webmaster | NFSMI Home | University of Mississippi home