Introduction and Overview

UNSPSC
United Nations Standard Products
and Services Code
 Agenda
• What is UNSPSC?
• Value of Implementing the UNSPSC
• Success Stories
• How to Implement the UNSPSC
• Realizing the Benefits
• How to Get Started
• Membership
• Conclusions
 Can you answer these questions?
• How much do we spend?
• On which products?
• From which suppliers?

…inadequate spending analysis capabilities are

costing businesses $260 billion in missed
savings opportunities annually.
Aberdeen Group, “The Spending Analysis Benchmark Report: Dissecting a Corporate Epidemic”,
January 2003
 What is the UNSPSC?
• “United Nations Standard Products and
Services Code”
• An open standard
• A taxonomy of products and services
• A practical business tool
 Define: Open Standard
• Publicly available specifications for solving a certain
problem
• Not proprietary
– Available to all to read and implement
– No royalty or license fees for usage
– No restrictions on sharing codes with trading partners
– No lock-in to one commercial solution
• Do not discriminate or favor; level, neutral playing field
• Participation in development is open and transparent
• Decisions are made on a consensus basis
• Not to be confused with “open source” software
 Define: Taxonomy
• A system of classification, in this case, of
products and services bought and sold
• A hierarchical tree structure, which
enables “drill down” and “roll up” analysis
• A practical tool, responsive to user needs
• Use in Enterprise Resource Planning, e-
Commerce, Business Intelligence systems
 Example: Biology
Purpose: to enable collaborative science
“root” = All Living Things (typically, the root is implied)
Kingdom (Animals, Plants, Fungi, Bacteria…)
Phylum (Vertebrates, Mollusks, Arthropods…)
Class (Mammals, Fish, Reptiles, Birds…)
Order (Carnivores, Primates, Ungulates…)
Family (Cats, Dogs, Bears, Seals…)
Genus (Felis, Lynx, Panthers…)
Species (Felis silvestris catus)

Felis silvestris catus

 Example: UNSPSC
Purpose: to enable collaborative commerce
“root” = All Products and Services (implied)
Segment 44 Office Equipment and Accessories and Supplies
Family 10 Office machines and their supplies and accessories
Class 15 Duplicating machines
Commodity 01 Photocopiers
Class 31 Printer and facsimile and photocopier supplies
Commodity 03 Toner

44101501 Photocopiers 44103103 Toner

 Advantages of UNSPSC
• The UNSPSC is available in 10 languages:
– Chinese, Dutch, English, French, German, Italian, Japanese,
Korean, Portuguese and Spanish
– Standard codes eliminate ambiguity
• Segments exist for:
– raw materials
– industrial equipment
– components and supplies
– end-use products
– services
• Comprehensive: over 20,000 categories
• Responsive to the marketplace
Avoid Expense of Developing Your
Own Classification System
• Typical home-grown coding systems take a year or more
to develop – you can download the complete UNSPSC
today
• Avoid duplicated effort, where every trading partner
codes differently
 UNSPSC Design
• Hierarchical 4-level tree structure: Segment, Family,
Class and Commodity
– Note: “Commodity” is not defined as bulk materials but in the
broader sense as any article of commerce including capital
equipment, high-value products, and professional services.
• Category titles are unambiguous and mutually exclusive
• Products appear in only one category; categories each
have only have one parent
• Products are grouped according to dominate usage in
world market
 UNSPSC Components
• UNSPSC Code: 8 digits, e.g. 44103103
• Title: natural language text up to 120
characters long, e.g. “Toner”
• Definition: free form text gives concise
explanation
• Business Function: 2-digit codes for Rental
or Lease, Maintenance or Repair, Manufacturer,
Wholesale, Retail, Recycle, Installation (optional
to use)
 UNSPSC Code Structure
Segment 44000000 Office Equipment and Accessories and Supplies
Family 44100000 Office machines and their supplies and accessories
Class 44103100 Printer and facsimile and photocopier supplies
Commodity 44103103 Toner

44103103 = Toner
 UNSPSC Segments
The 55 Segments are arraigned in a logical sequence that
reflects how value is progressively added to products.

Components
Raw Industrial End Use
and Services
Materials Equipment Products
Supplies

Segments 10-15 Segments 20-27 Segments 30-41 Segments 42-60 Segments 70-94

Family, Class and Commodity codes are arbitrary, and

reflect no logical sequence.
 Value of Implementing the
UNSPSC
• Automate the gathering and analyzing of spend data
• Provide a uniform, enterprise-wide view of spend
• “Roll up” analysis identifies contractible groups,
opportunities for strategic vendor relationships
• Centralize procurement function, leverage volume for
better pricing
• Collaborate with Customers or Suppliers through use of
a common classification system
• Control maverick spend: reduce off-contract spend at
higher prices
• Reduce inventory through product standardization
 The Chief Reasons Organizations
Implement Spend Analysis
Strategic sourcing 76%

Purchase volume leverage 71%

Supplier performance tracking 59%

Budgeting, planning 59%

Contract compliance 46%

Inventory management 43%

e-Procurement 42%

1 The Spending Analysis Benchmark Report, Aberdeen Group, January 2003

 Value for Suppliers
• Facilitate sales function, particularly through Internet
exchanges
• Qualify as preferred supplier to customers with e-
procurement initiatives
• Speed new product introductions using Web services,
XML, etc.
• Facilitate globalization of your business
• Collect consistent sales data across channels, regions
• Collaborate with customers to improve contract
compliance, increasing the supplier’s market share – a
win-win
 UNSPSC Success Stories
• After benchmarking other companies, Microsoft selected the
UNSPSC as its standard commodity classification system. The
procurement team was looking for a coding system that it could use
not only to classify spend, but also to communicate with its trading
partners. Developing an internal system, said Don Jones, general
manager, corporate procurement, “would hamper our ability to
communicate through our e-procurement system with our supply
base.” The company's hardware suppliers all use the same version
of the UNSPSC code.
• Use of MS Spend has cut weeks, if not months, out of the spend
analysis process.
• Using data to cut spend by $1.4 billion in FY05

Super spend analysis, Purchasing honors seven companies in 2004 for their
leading-edge practices in spend analysis, Purchasing, March 18, 2004
 UNSPSC Success Stories
• PPG Industries captured more than 95% of its
spend (more than $5 billion) from 23 data
sources in a centralized staging database before
driving it to a spend analysis tool.
• Indirect materials are classified with UNSPSC
codes
• More than 10% savings and 90% supplier
reduction
Super spend analysis, Purchasing honors seven companies in 2004 for their
leading-edge practices in spend analysis, Purchasing, March 18, 2004
 UNSPSC Success Stories
• Consumer products company reported slashing
bids by as much as 90% after consolidating and
analyzing over $30 billion worth of purchases
from 50 different A/P systems.1
• Manufacturer of cutting tools saved over $1
million on $800 million in “quick hit” negotiations
by applying the lessons learned after merging
Accounts Payable, Purchase Order and
Purchasing Card data. 1
1. Adopting UNSPSC, Zycus Inc.
 UNSPSC Success Stories
• Cabinetry manufacturer lowered the costs of
purchased materials, with a projected year-over-
year savings of 2% to 4%, by consolidating
spend data across five divisions. 1
• A hospital negotiated a 14% discount on
coronary stents worth $600,000 annually after
analyzing spend and standardizing on one
supplier. 2
1. Adopting UNSPSC, Zycus Inc.
2. A UNSPSC® Success Story, 2005, Coalition for Healthcare eStandards, Inc. (CHeS)
 How to Implement UNSPSC
• Classify products: enter the appropriate 8-
digit UNSPSC Code against each item in
your system
• Store the UNSPSC Titles in a look-up
table
• If a code for your product does not exist,
temporarily use the parent category and
submit a request for a new code
 Add UNSPSC Code to Each Item
Item# Brand Name Unit UNSPSC

12345 Brand® Copy paper, 8 1/2” X 11”, White, 20lb, 10 CS

Reams
23456 Brand® Retractable Ballpoint Pens, 1.0 mm, Medium BX
Point, Black Barrel, Black Ink, Box Of 12

34567 Brand® Color LaserJet Black Toner Cartridge EA

45678 Brand® 15' Extension Cord, 3 Conductors, 3 Outlets, EA

Gray
 Add UNSPSC Code to Each Item
Item# Brand Name Unit UNSPSC

12345 Brand® Copy paper, 8 1/2” X 11”, White, 20lb, 10 CS 14111507

Reams
23456 Brand® Retractable Ballpoint Pens, 1.0 mm, Medium BX 44121704
Point, Black Barrel, Black Ink, Box Of 12

34567 Brand® Color LaserJet Black Toner Cartridge EA 44103103

45678 Brand® 15' Extension Cord, 3 Conductors, 3 Outlets, EA 26121536

Gray
 New Category Step 1
50000000 Food Beverage and Tobacco Products
50100000 Fruits and vegetables and nuts and seeds

50101800 Fresh citrus fruits Persian limes

50101804 Lemon fruit
50101809 Orange fruit
50101805 Key lime
501018?? Persian lime fruit ??

Temporarily classify the items under the missing

category’s logical parent. Then submit proposal
to add a new category.
New Category Step 2
 Resources Needed
• Familiarity with products
– Recognize product despite extreme
abbreviations
– Electrical lead or Pencil lead?
• Familiarity with the taxonomy
• Basic understanding of principles of
classification
• Allocated staff or outsource
 Options for Classifying Items
• Have requisitioners select category up front in e-
Procurement system
• Manual in-house
– Pros: low initial cost; immediate results for small volumes; use
existing office software; maximize ‘ownership’ and detailed
knowledge of data
– Cons: not scalable; less consistent; requires personnel
commitment
• Classification software
– Pros: semi-automates the process; improves quality, consistency
and productivity over manual; flexible, customizable; maximum
insight
– Cons: requires personnel commitment; longer to implement;
slower ROI
 Options for Classifying Items
• Outsource
– Pros: service providers have software and experienced
specialists, scalable at lower total cost
– Cons: security, less ‘ownership’ of data, lock in to solution, less
flexible
• Hybrid or Phased
– Outsource initial high-cost pass through data, learn, transition to
in-house maintenance
– Avoid locking in some of the disadvantages
 Recommendations
• Plan for larger initial investment followed by smaller
ongoing maintenance costs
• If core competency: investigate automation software and
building in-house expertise
• Combine with other data enhancements
• Poor product descriptions are the #1 challenge to
accurate and efficient classification
 Realizing the Benefits
• Drill down to focus your attention on the
categories that represent the most spend
• Roll up to identify ‘contractible groups’,
reduce the number of vendors
• Use with decision support tools
– Regular periodic reports, to monitor and alert
– Ad hoc, to identify new savings opportunities
 Drill Down
Classes Commodities
$140,000 $60,000

$120,000
$50,000

$100,000
$40,000
$80,000
$30,000
$60,000

$20,000
$40,000

$20,000 $10,000

$0 $0

Computers Displays Accessories Notebooks Servers Desktops PDAs

 Roll Up
Classes Commodities
$140,000 $60,000

$120,000
$50,000

$100,000
$40,000
$80,000
$30,000
$60,000

$20,000
$40,000

$20,000 $10,000

$0 $0

Computers Displays Accessories Notebooks Servers Desktops PDAs

Analyze Spend Over Time
Year over Year Increase

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$0
2003 2004 2005
 Extending to Product Attributes
43000000 Information Technology Broadcasting and
Telecommunications
43200000 Components for information technology or broadcasting
or telecommunications
43201800 Media storage devices
43201803 Hard disk drives
Industry- or company-specific extension beyond the UNSPSC standard
Product Access Bit Rate Rotational Seek Capacity Height Width Depth Weight
Name Time Speed Time

HARD 300 MB/s 64.8 MB/s 7200 RPM 8.5 ms 500 GB 25.4 mm 101.6 mm 146 mm 700 g
DISK
DRIVE
 How to Get Started
• Go to www.unspsc.org and click DOWNLOADS
for current version
• Evaluate, build internal support, budget
– Use case studies to help predict ROI
• Form Business-Unit/IT team, plan project
• Capture data, classify items
• Analyze spend, identify savings opportunities,
capture savings, repeat
 Membership in UNSPSC
UNSPSC is a member-funded initiative. As a member, your company
can actively improve the code to meet your business needs. Benefits of
membership include:
• Submit change requests to the code
• Vote on change requests
• Participate in industry revision projects
• Download past versions of the code in multiple languages
• Download past audit files in multiple languages
• Receive unlimited helpdesk support via phone and email.
• Preferred member rates at conferences
• Receive newsletter on codeset activities
• Choose membership level to meet your needs
 Versions, votes, etc.
• There are Change Request and Voting
periods each year
• 2 codeset versions are published per year
• Format: Excel spreadsheet inside a
compressed Zip file
 Conclusion
• Manage spend to improve the financial health of
your organization
– Rationalize vendors
– Standardize products
– Leverage volume to negotiate better pricing
– Improve operational efficiency of purchasing function
• Start now to maximize benefits
• Join and participate to meet your business
needs
Further Reading