Course Correction for Los Angeles School Foodservices

“The facts, Ma’am. Just the facts.”

That iconic phrase is attributed to the character Sgt. Joe Friday on the radio and TV show Dragnet. In reality, he never said it. According to Wikipedia, the closest lines were, "All we want are the facts, ma'am."

Still, the good sergeant would be right on the case if asked to nail down the facts about the Los Angeles Unified School District and its ambitious efforts to re-engineer foodservice operations since 2007. That was when, after a national search, LAUSD hired Dennis Barrett to administer its program, restructure its operations and change its future course.  

“I think I was probably the only one foolish enough to accept the position,” Barrett quips today. “It’s a big district with lots of challenges. To many, they seemed insurmountable.”

Last month, after many changes, Barrett announced his retirement and passed the reins to David Binkle, whom he hired as his right hand in 2007 as Deputy Director for Menu and Compliance. Binkle will now serve as interim director.

Changing the course of a district the size of LAUSD has been a massive effort. Much has been said, some right and some wrong, about it, but an accurate portrayal of its full scope and scale has been missing. In this article, FM takes a look at what Barrett and Binkle have accomplished and what still remains to be done…

Consider the Territory

LAUSD is one of the very largest school nutrition programs in the country. It has been in the forefront of change for a long time, often forging new ground in nutrition policy and also coping with the challenge of operating in a high-cost, urban environment. It serves 618,000 students, most with subsidized meals, at 763 schools across a 700 square mile district.

Back in 2002, the LAUSD board made improving the nutrition and quality of the food it served children a top priority. With leadership from board President Marlene Canter, it approved far-reaching local policies governing all foods and beverages available in district schools. Many of its policies eventually inspired both state and federal school nutrition policies.

Setting goals was one thing, but achieving them meant addressing longstanding problems. The district’s commitment to “living wage” and benefit policies, even for part-time workers, means it has some of the highest overhead and operating costs in school foodservice. This virtually guarantees annual budget deficits when the program is fully staffed and means less money is available for food per meal, handicapping food quality and nutrition goals.

Many of its facilities lacked kitchens and adequate indoor seating. And in spite of a high percentage of subsidized meal students, program participation remained relatively low, partly because public perception of its meal quality was poor.

Further, a state Coordinated Review Effort (CRE) audit in 2004-05 found serious deficiencies in the district’s performance standards. Its critical ratings for counting/claiming reimbursable meals and for meeting menu and nutrition standards were out of compliance.

Another state review in 2007 revealed that the district had overspent its 2005-06 USDA Foods entitlement by $7 million, underscoring a serious lack of control of the commodity program.

The good intentions were there and fully supported by the board. But the need to take corrective action was urgent.

Adding value, reducing costs

As a $259 million non-commercial food service operation, LAUSD’s program is roughly equivalent to a $600 million fast food chain. At the same time, it operates under much tighter federal and local regulation (and certainly, a lot more political and policy concerns) than any chain.

But despite the parallels, LAUSD was not operated like a profit-and-loss business and Barrett set out to change that. A respected leader in the school nutrition community, he was a past recipient of the coveted IFMA Silver Plate award for his work in the Dallas, Texas, district and had a strong track record overseeing large production systems and operations.

“There was a strong desire here to make this district’s program a true national leader in school nutrition,” Barrett says. “The program also had to be put on a sound business footing. Those were the challenges that really attracted me.”

One of Barrett’s first moves in early 2007 was to “bring in backup” in the person of David Binkle, whom he had worked with previously in Dallas. Binkle also had an extensive management and culinary production background on both the contract and self-op sides.

“We asked, ‘Where are there processes that aren’t adding value to our business?” Barrett says. “We wanted to know where we were adding unnecessary costs and also to identify costs that were outside the department’s control.”

A top-to-bottom review

Together, they undertook a top-to-bottom review of the operations and pursued major structural and policy changes as a result. Among the most significant:

✓ a re-designed system for hiring and employee training with a move to documented performance planning and reviews;

✓ implementation of a site-by-site P&L management system;

✓ a streamlined approach to menu planning and production;

✓ an innovative approach to procurement and category sourcing that breaks new ground in school foodservice;

✓ a strategy for engaging suppliers in efforts to improve the image of LAUSD foodservices;

✓ and a complete restructuring of the district’s approach to using commodity allocations from the USDA.

“Much progress has been made, but much remains to be done,” Binkle says. Still, the groundwork is laid and its results offer a good insight into where the district will likely go from here.

A Focus on HR, Training and P&L management

As a first line of attack, Barrett sought to address inadequacies in the district’s HR processes. In 2006, there were 800 open positions among a staff of 4,200, a vacancy rate of almost 20 percent. The main reason: a bureaucratic hiring process that took four to six months for each new employee.

The long delay meant many applicants gave up. There was no training or orientation system and the need to fill openings was so desperate that new hires were put to work in schools immediately to sink or swim.

Changing that took a series of complex negotiations with the district’s Personnel Commission. This led to opening three regional offices and restructured hiring policies to let the district evaluate and hire applicants much more quickly. A 10-day training period was made mandatory for new hires; it emphasized basic procedures, especially in areas related to the noted CRE deficiencies.

After the CRE audit in 2005, the district had to develop a plan for corrective actions to address its 77 pages of findings. Many were related to poor record-keeping across operations, which for the most part was still done manually.

The biggest problem was accounting and accountability. Also, there were no P&L or KPI metrics with which to compare school performances or manage operations. Roy Romer, district superintendent, convinced the board to invest bond money to automate the department’s systems and bring them into compliance. Michael Eugene, the district’s business manager, charged Barrett and his team with developing a plan to implement these and other corrective actions.

Back office systems—for production and forecasting, procurement, inventory, POS tracking, meal applications—were all essentially re-invented. The department's management structure was strengthened and Timikel Sharpe, deputy director of HR, training and finance, was tasked with developing an automated system for performance planning and evaluation.

The Bottom Line: Today, new staff can be hired as quickly as needed background and other checks are completed; the vacancy rate is consistently under two percent. Performance evaluation is part of the culture with measurable standards used across the system. KPI comparisons of a pilot breakfast in the classroom program show it has helped reduce tardiness and discipline problems. And in 2009, another CRE audit in which 41 reviewers visited 47 sites reported no serious findings.

Coordinating Menu Planning and Procurement

The menu planning system in place in 2006 was dysfunctional in many respects. USDA Foods offerings were taken whether they fit meal plans or not. Menus were created month-to-month based on available warehouse inventory even though, by and large, menu planning was not coordinated with procurement.

High schools offered up to 15 entrée choices daily, based on individual school menuing decisions. This—along with manual record-keeping—added tremendous inefficiencies to the system and made effective planning impossible. Warehouse stock was driven by the bid process, with nearly 70 separate bids awarded each year. There was also the matter of excess inventory: $20 million worth of food in the warehouse, $3 million in offsite facilities and another $5 million at processor sites.

The management team—Barrett, Binkle, Sharpe, as well as Laura Benavidez (deputy director of operations) and Mark Baida (then, LAUSD’s executive chef)—developed a menu business plan with three major components:

✓ utilization of existing inventory and that under contract;

✓ converting the existing bid invitation process to an RFP process that would increase purchasing leverage;     

✓ and developing a menu plan that would comply with the new USDA meal regulations coming from Congress in 2010.

To make up for the $7 million commodity credit “overspend," the district took no USDA Foods that year and menus were planned to use up excess warehouse inventory. To standardize product needs, the district now plans only four district-wide menus with about 20 items in rotation on a three-week cycle. Reducing the number of items and increasing the volume of each reduces inventory costs and unit prices.

Menu overhaul

With the lack of school kitchens, a high percentage of food served is produced to department specs by third party facilities under contract and shipped "fresh-frozen" for re-therming at point of use. At LAUSD’s massive central production facility, the district pre-plates meals for 450 schools, up from 220 in 2006. Preparing meals centrally has helped ensure consistency and control.
 
The fall of 2011 was the first year LAUSD was able to fully implement its changes. Gone were chicken nuggets and pizza. In were Ancho Chili Chicken with Yakisoba; Vegetable Manicotti w/Tomato Basil Marinara; and a variety of other higher quality, more nutritious items. “All were extensively tested with hundreds of parents and over 700,000 students collectively,” says Barrett. “Parents were universally supportive.”

Still, some menus fell flat (students never like it when pizza and chicken nuggets are taken away). Enrollment declines and systemic changes—the elimination of “second chance” breakfasts, shortened lunch periods, the end of an experimental “year round” education model—also negatively affected participation. At one point meal counts were down 20 percent, but today they are back to where they were a year ago.

"A big part of our effort is to change the palates and meal expectations of students," offers Binkle. "We've replaced sugar and salt with herbs and spices and eliminated foods like cheese nachos and corn dogs. It takes time for such change to be accepted.

“We’re in this for the long haul,” he adds. “We're committed to improving the health of students and the quality of school food and our efforts are going to have these kinds of challenges.”

The Bottom Line: 27 daily menus were reduced to two. Standardizing and centrally producing pre-plated meals reduced per plate cost by $1. Five years ago, 109 million meals were produced with a food cost of $124 million; last year, 124 million meals were produced with a food cost of $89 million.

Meanwhile, LAUSD—like other schools—is preparing to comply with strict new regulations this fall that will mean more of the same kinds of menu changes and also raise meal costs.They will not be easy for LAUSD to meet and Barrett estimated they will cost the district as much as an additional $50 million a year.

A Categorical Procurement Model

With a food budget of more than $100 million, Barrett and Binkle thought LAUSD should receive the best prices possible. But comparisons with other districts showed it sometimes paid as much as $6/case more because of inefficiencies in its bid process.

“We compared our procedures with the way private companies purchase,” says Barrett. “We questioned why we let 69 individual bids when industry’s best practice is to have a prime vendor contract, the total cost of procurement and supplier relationships based on mutual benefit.

“We wanted to shift the process from being simply a 'goods bid' to one emphasizing broader service contracts,” he adds. “To one recognizing our larger goals as opposed to focusing solely on food purchases.”

More on the difference between product bids and service RFPs

To determine if this approach could yield the results it wanted, the department issued a Request for Information and Qualification (RFIQ) in February 2010. The department was moving on a fast track in order to make awards in time for the new school year . When responses were positive, LA issued RFP NO. 1007 the following month.

The district identified 11 defined criteria for making its awards. These ranged from customer service levels to technology, logistics, pricing methodology, marketing and social responsibility, including contributions to supporting its initiatives to improve student wellness, attendance and other factors.

View the full RFP
 
The department initially sought partners for only four of its largest food categories—beef, chicken, turkey and potatoes. It offered major procurement commitments for a five year period. (In fairness to existing contracts and suppliers, and because it made financial sense, the district committed to honoring those agreements during a transition to the new system.)

Since then, the district has added four additional categories: bread, produce, vegetarian and dairy. Next year it will add miscellaneous food and supplies, for 10 in all.

For category items that partners don’t provide directly, the district encourages partnerships between partners and subcontractors. The goal is to achieve the lowest procurement cost while ensuring a reliable supply of items the district wants on the menu from a select group of prime vendors.

The Bottom Line: The new approach has significantly reduced costs. LAUSD went from having 12 buyer positions to a single position. It is on target to meet its goal of spending 40 percent of program revenue on food and five percent on supplies this year. (Back in 2006, it spent 47 percent on food and 4.5 percent on supplies.)

Addressing participation issues

LAUSD’s enrollments have been in a slow decline, about three percent a year, since 2007. Meanwhile, participation in senior high schools was under 20%, despite 80% free and reduced price eligibility. The low levels weren't for lack of trying—in 2007, up to 15 different entrée choices were offered daily across the system—but choice wasn’t the core issue.

“The community perceived our food as highly processed, of poor quality and not nutritious,” Barrett says. “That is what had to change.” Standardizing menus and upgrading entree offerings and ingredients were a high priority, as already described.

The new RFP also established support for the district's campaign to improve its public image as a key criteria for suppliers, asking vendors what they could contribute, cash or in-kind, to support that initiative. One of the more significant results of the new approach was an image-building campaign suggested by what became one of the district’s category partners.

The company offered to use its marketing resources to help develop a promotional campaign and theme—“I’m In”—that proved so successful it was adopted by the entire district: “I’m in for good health” … “I’m in for eating right” … “I’m in to stay physically active” … “I’m in to study hard and succeed.”

Another supplier created an online app system to let LAUSD families and students get nutritional and other information about the food offered on its menus.

The Bottom Line: Senior high school participation has risen from 20 percent to 38 percent. Middle schools percentages have gone from the 20s to the mid 40s, with elementary participation remaining flat at 75 percent. Over 40 million “impressions” across multiple media have been documented by people exposed to LAUSD’s school meal marketing message.

Commodity credit utilization

One of the most misunderstood pieces of the LAUSD strategy is its approach to using USDA Foods entitlement dollars.

While Federal support is always welcome, “The USDA Foods program has always presented one of the great uncertainties in school foodservice,” says Barrett.

The biggest weakness: a district’s commodity choices must be submitted as much as 24 months in advance of a school year, with no guarantee those commodities will eventually be available. When availability is known, it often is well after menus are planned and further processing and procurement arrangements are made.

LAUSD sought to dramatically change the way it participated in the commodity program, applying all of its annual credit to only the four items it could divert to its category partners for reprocessing. That would ensure that whatever credit did become available would apply against product or ingredients it knew it would use in its menu plan.

(While some believed this required a change USDA rules, there has never been a federal requirement that a district request any particular combination of items. Some states do apportion entitlements between Type A and Type B items, but this is not a federal or a California requirement.)

LAUSD also wanted to go further in taking more non value-added costs out of the way the commodity program operated. It wanted to supplement its USDA Foods account with its Section 4 and 11 meal reimbursement funds. A 1994 change in NSLA law allowed this approach, but it had never been tried and required approval by the state authority. While seemingly simple, the change complicates state accounting systems and getting approval has been a drawn-out process.

Finally, because of the way the commodity program operates, with USDA allotments distributed via state systems, LAUSD currently must pay the California State Agency a fee of $.80 (recently decreased from $1.00) per case, even when its USDA Foods are directly diverted to processors. It wanted to work directly with USDA’s purchasing offices, circumventing the state and its fees, and lobbied to have those allotment dollars applied directly to commercial product purchases.
 
The Bottom Line: LAUSD successfully narrowed its commodity program purchases to its primary categories. A pilot program to test the direct transfer of Section 4 and 11 funds to its commodity purchase account was finally approved this spring after USDA’s Food and Nutrition Service (FNS) department, Agricultural Marketing Service (AMS) and the Child Nutrition Division of the California Department of Education agreed on an amendment to the state’s contract with USDA.

To date, the district's proposal to have commodity allotment dollars paid directly to the district's vendors has not been approved and would require a change in the law (more on that in a moment).

What the critics say

Several of LAUSD’s foodservice initiatives have been controversial and the district’s approach has its share of critics.

For example, some believe that seeking vendor involvement in a district’s marketing campaign inevitably adds to the cost of product and goes beyond a prudent use of public funds. In response, Binkle points out that the terms of LAUSD’s RFP were reviewed by the district’s general counsel multiple times.

“Each time, counsel concluded it is a reasonable request within the context of the RFP.” Ensuring that vendors commit to socially responsible policies serves the district's program and community and is similarly appropriate, he adds.

Others have criticized the relatively long RFP contract terms (five years) and emphasis on a small number of primary category partners, suggesting it favors large suppliers over smaller ones who might be able to effectively bid on only parts of a category. While the district negotiates products and prices with each category vendor, critics say monopoly contracts can work to undermine open, competitive pricing. They also say there is some risk in relying so heavily on so few suppliers.

Barrett and Binkle point to significant savings the approach has generated and argue that the point of competitive bidding is to assure the lowest costs overall, not on individual items.

Other concerns are expressed by those who see the USDA commodity program as one designed to serve the interests of both school nutrition and the agricultural sector. They worry that a focus on so few commodities may weaken the broad political support that makes the program possible or affect the availability of those commodities to other buyers.

Perhaps the most controversial initiative attempted by the district was its request to have USDA directly divert its commodity credit to category partners. The goal was to more efficiently plan menus around specific, commercially-available items and the department saw this as more efficient than the existing system of working through the state authority.

That approach has not been approved. Existing law provides that USDA work with states, which in turn set up comodity agreements with individual districts.

While such a change would theoretically result in considerable savings for LAUSD, it would also have far reaching implications. Were it allowed, other large purchasing influences would likely seek to follow suit. And if the largest users opted out of the state program, it would force districts still using it to carry all its considerable overhead costs. Presently, large commodity users essentially cross-subsidize smaller ones via the state fee structure, whether they actually use the state warehousing and distribution system or not.

Looking ahead

Without question, Barrett and Binkle have taken LAUSD's commitment to improving the health of the district’s students via school nutrition to a level many would have found unimaginable a half dozen years ago.

They’ve dramatically changed the way LA’s nutrition program is administered and put in place groundbreaking strategies likely to influence foodservice programs across the country.
 
For LAUSD and its partners, the new model opens doors for collaborative efforts unlike any possible in traditional bids. Among other benefits, the longer terms and large commitments allow customized product development and mutually beneficial item rotations geared specifically to the school market.

Some initiatives—such as one to modernize the merchandizing capabilities of school serveries—will require additional funding. But the district’s most daunting challenge is to consolidate its gains while continuing to restructure to meet the strict requirements of the Healthy Hunger-Free Kids Act that takes effect this fall.

While the district has already met many nutritional targets (its meals have been at 1100 mg of sodium for several years, while the new regs only require a 1400 mg level four years from now), compliance will be costly.

With Barrett’s decision to retire last month, Binkle will be the one shouldering that challenge. His own extensive culinary and production background seems likely to influence that future.

“I see us going back to more onsite cooking,” Binkle says. “It would not be totally from scratch, but would implement more finishing production at school sites.”

One way would be for some local schools to serve as production hubs for others nearby, he says. Another might be to scale back use of the pre-plating facility, outsourcing some of that work to third parties that would deliver fresh meal components to schools each day.

Binkle also sees some potential in using third party contracts to develop items that could be sold in retail outlets under the trademarked Café LA brand. “There are many prominent people in the community who would like to help us do something like this to create an enterprise fund supporting education,” he adds.

Such ideas are still in the future. If the past is any guide, they will only come to fruition if the financials and data support them. For now, “There is still much to do in the schools. We need to stay focused on our goals and the plan we’ve developed to help reach them,” Binkle says.