UNSPSC Should we embrace standardization?

If you could look into the future and correctly predict how your business and your markets would evolve you would become wealthy beyond your wildest dreams right?  Isn’t it amazing how some people are just in the right place at the right time? Perhaps they aren’t.  Perhaps they’ve been watching trends develop on a number of fronts and look at where those trend lines converge.

UNSPSC Logo

This article is about that convergence.

In essence this is a follow on article that will bring several previous articles and concepts together.

Here’s the bottom line on those:

  • Customers are looking for more and more competitive products
  • Manufacturers are trying to find out more and more about competitive products
  • Customers are using social media to seek out competitive information more and more

What’s missing? What happens?  How can anyone possibly find the best products to suit their needs?  How can anyone find a complete list of who their competitors are?

As we move more and more to developing efficiencies in the global market place there is an increasing demand from customers and competitors to be able to compare products side-by-side in their evaluations. As a result back in 1998 the UNSPSC Coding system was developed.

Previously, there was no standardized way to consolidate and analyze data across the companies or industries.  “But what is it?” you ask. If you recall from the High School rote learning of biology’s taxonomy: “Kingdom, Phylum, Class, Order, Family, Genus, Species” that’s what it is, but for industry.

The United Nations Standard Products and Services Code®(UNSPSC®) provides an open, global multi-sector standard for efficient, accurate classification of products and services.  The UNSPSC system was jointly developed by the United Nations Development Programme (UNDP) and Dun & Bradstreet Corporation in 1998.

UNSPSC: A Hierarchical Structure for Analysis

The UNSPSC is a hierarchical classification, having five levels.  The levels allow users to search products more precisely (because searches will be confined to logical categories and eliminate irrelevant hits) and it allows managers to perform expenditure analysis on categories that are relevant to the company’s situation.

Each level contains a two-character numerical value and a textual description as follows:

XX Segment

The logical aggregation of families for analytical purposes

XX Family

A commonly recognized group of inter-related commodity categories

XX       Class

A group of commodities sharing a common use or function

XX       Commodity

A group of substitutable products or services

XX       Business Function

The function performed by an organization in support of the commodity

All UNSPSC entities are further identified with an 8-digit structured numeric code which both indicates its location in the taxonomy and uniquely classifies it. An additional 2-digit suffix indicates the business function identifier.

A structural view of the code set would look as follows:

Hierarchy Category Number and Name

Segment 43 Information Technology Broadcasting and Telecommunications Communications Devices and Accessories

Family 20 Components for information technology or broadcasting or telecommunications Computer Equipment and Accessories

Class 15 Computers Computer accessories

Commodity 01 Computer switch boxes Docking stations

Business Function 14 Retail

So while, keeping all of the previous articles in mind here’s some info from the UNSPSC website:

What does UNSPSC do for me?

By embedding UNSPSC classification standards into your management systems – purchase orders, invoices, electronic documents, product catalogues, websites – all parties throughout the extended supply chain benefit.
Here are some examples:

  • Procurement can keep an eye on how much is spent buying what. This information is readily available to them to analyze the specifics in the buying process at the level of detail that most suits the business needs in a timely and precise manner. They can cut in half or less the time it takes to find the products needed by searching by commodity code through brokers, on line exchanges, business partners, etc. across the globe. They can spot buying patterns across departments or business units to leverage better conditions from suppliers and realize overall savings.
  • Marketing is able to get field data fast for market research, product development, and sales analysis, ultimately delivering to the company’s bottom line, via customer satisfaction.
  • Sales can monitor sales channels and distribution all the way to the store shelf or end user. They can gather market intelligence quickly via electronic platforms for accurate sales analysis. They can extend the reach of their products to customers across the globe by publishing e-catalogues, registering with search engines or third-party market places

-from the Frequently Asked Questions page

If you watch trends, then it’s going to make sense to assign UNSPSC numbers to your products and component parts.  You may not have to do it today, or tomorrow, but at some point the system is going to pick up enough momentum that you will be forced to implement it.  As social media takes hold and more and more information is poured into the world, there is going to be an increasing demand for use of a global standard by not only companies but government agencies.

Other industries are already embracing the technology. In 2005 E-Biz Forum jointly hosted by the National Association of Electrical Distributors (NAED); the Industry Data Exchange Association (IDEA); the Electro-Federation Canada (EFC); the National Association of Electrical Manufacturers (NEMA); and the National Electrical Manufacturers Representatives Association (NEMRA) talked about it.  They brought together speakers from Jordan Colletta, Vice President of e-Commerce Marketing, UPS; Neil Gillespie, Principal, Channel Marketing Group; Peter Brandt, VP Industry Solutions Group, SAP America and John Stelzer, Director Business Development, Sterling Commerce. Experts from GS-1 US, Prophet 21, Infor Global Systems, Activant Solutions, Intuit Eclipse, EDM, Full Tilt Solutions and Sterling Commerce so this is not new news.  It’s just a matter of time before your this filters down to smaller companies and soon search engines will be be cataloging UNSPSC codes.

Then the made dash will begin.  Are you going to be ready?

For larger companies, SAP has a product called  SAP® BusinessObjects™ Spend Performance Management application, one of the SAP BusinessObjects EPM solutions, to provide its sourcing community with a consolidated view of its data that conforms to United Nations Standard Products and Services Code (UNSPSC) standards, allowing companies to better analyze spend by category. With this insight, the procurement team is  able to identify opportunities for better contract management with vendors. And because this information is refreshed weekly, sourcing experts can evaluate their procurement on a continuous basis rather than periodically throughout the year

If you want to stay up to date on the development of the UNSPSC Code you can check out The UNSPSC Blog.

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  1. Excellent, very informative article.

    I agree completely that “there is an increasing demand from customers and competitors to be able to compare products side-by-side in their evaluations”

    Because I have been working on a competitive offering, I’m glad this taxonomy (like NAICS, SIC and ISIC) is a hierarchical classification. The Industry Building Block Classification System [TM] is not a fixed hierarchy. Do you know why the UNSPSC believes this is a positive? (I assume it’s not just the ability to sum up a fixed pyramid.) Do you know?

    And thanks again for very informative article,
    Alan

  2. Alan,
    I’m not sure why the UNSPSC is hierarchical other than it can assign a upper level numerical code to drill down to. I suspect it has to do with flat file database categories. I suspect that you believe that their might be a better way to display relationships, as in a relational database or perhaps something more advanced that could handle future evolution or replication ….

    see “Evolution and Complexity” Thomas S. Ray http://portal.acm.org/citation.cfm?id=336634

    Now you have me curious. How is the “Building Block Classification System” structured?

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