Introduction and Overview United Nations Standard Products and Services Code

Text document of presentation on the Introduction and Overview of the United Nations Standard Products and Services Code (UNSPSC).

Slide 1

Introduction and Overview UNSPSC

United Nations Standard Products and Services Code

Slide 2

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

Slide 3

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

Slide 4

What is the UNSPSC?

• "United Nations Standard Products and Services Code"
• An open standard
• A taxonomy of products and services
• A practical business tool

Slide 5

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

Slide 6

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

Slide 7

Example: Biology

Photograph of common house cat labeled: Felis silvestris catus

Purpose: to enable collaborative science

"root" = All living Things (typically, the root is implied)

• Kingdom (Animals, Plants, Fungi, Bacteria...)
  • Phylum (Vertebrates, Mollusks, Arthropods...)
    • Class ( Carnivores, Primates, Ungulates...)
      • Family (Cats, Dogs, Bears, Seals...)
        • Genus (Felis, Lynx, Panthers...)
          • Species (Felis silvestris catus)

Slide 8

Example: UNSPSC

Photograph of copier labeled: 44101501 Photocopiers

Photograph of cartridge labeled: 44103103 Toner

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

Slide 9

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

Slide 10

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

Slide 11

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

Slide 12

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)

Slide 13

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

Photograph of cartridge labeled: 44103103 = Toner

Slide 14

UNSPSC Segments

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

Raw Materials (Segments 10-15) > Industrial Equipment (Segments 20-27) > Components and Supplies (Segments 30-41) > End Use Products (Segments 42-60) > Services (Segments 70-94)

Family, Class and Commodity codes are arbitrary and reflect no logical sequence.

Slide 15

Value of Implementing the UNSPSCC

• 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

Slide 16

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%

The Spending Analysis Benchmark Report, Aberdeen Group, January 2003

Slide 17

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

Slide 18

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, "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

Slide 19

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

Slide 20

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

¹Adopting UNSPSC Zycus Inc.

Slide 21

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

¹Adopting UNSPSC, Zycus, Inc.

²A UNSPSC Success Story, 2005, Coalition for Healthcare eStandards, Inc. (CHeS)

Slide 22

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.

Slide 23

Add UNSPSC Code to Each Item

Item#	Brand	Name	Unit	UNSPSC
12345	Brand®	Copy paper, 8 1/2" X 11", White, 20lb, 10 Reams	CS
23456	Brand®	Retractable Ballpoint Pens, 1.0 mm, Medium Point, Black Barrel, Black Ink, Box Of 12	BX
34567	Brand®	Color LaserJet Black Toner Cartridge	EA
45678	Brand®	15' Extension Cord, 3 Conductors, 3 Outlets, Gray	EA

Slide 24

Add UNSPSC Code to Each Item

Item#	Brand	Name	Unit	UNSPSC
12345	Brand®	Copy paper, 8 1/2" X 11", White, 20lb, 10 Reams	CS	14111507
23456	Brand®	Retractable Ballpoint Pens, 1.0 mm, Medium Point, Black Barrel, Black Ink, Box Of 12	BX	44121704
34567	Brand®	Color LaserJet Black Toner Cartridge	EA	44103103
45678	Brand®	15' Extension Cord, 3 Conductors, 3 Outlets, Gray	EA	26121536

Slide 25

New Category Step 1

• 50000000    Food Beverage and Tobacco Products
  •     50100000    Fresh citrus fruits
    •         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.

Slide 26

New Category Step 2

Screen shot of form which allows user to create or edit a request to add a new commodity.

Form fields include:

• Select Class: 50101801 Fresh citrus fruits
• Title: Persian lime fruit
• Definition: Persian Lime (Citrus latifolia), is also known as Tahiti lime or Bearsa lime, is about  6 cm ir. diameter, is usually sold quite green.
• Business Class: Persian Lime is the primary citrus fruit grown commercially in the U.S. and sold simply a a "lime".

Slide 27

Resources Needed

• Familiarity with products
  • Recognize produce despite extreme abbreviations
  • Electrical lead or pencil lead
• Familiarity with the taxonomy
• Basic understanding of principles of classification
• Allocated staff or outsource

Slide 28

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

Slide 29

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

Slide 30

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

Slide 31

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

Slide 32

Drill Down

Image of two bar graphs illustrating that the class "Computers" can be drilled down to the "Commodities" Notebooks, Servers, Desktops and PDAs and their corresponding costs.

Slide 33

Roll Up

Image of the same two bar graphs as in Slide 32, with the flow going from Commodities to Classes.

Slide 34

Analyze Spend Over Time

Image of bar graph indicating the amount spent over a three-year span.

Slide 35

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 name	Access time	Bit Rate	Rotational Speed	See Time	Capacity	Height	Width	Depth	Weight
HARD DISK DRIVE	300 MB/s	64.8 MS/s	7200 RPM	8.5 ms	500 GB	25.4 mm	101.6 mm	146 mm	700 g

Slide 36

How to Get Started

• Go to www.unspsc.org and click DOWNLOADS for current versions
• 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

Slide 37

Membership in UNSPSC

UNSPSC is a member-funded initiative. As a member, your company can actively improve the code to meet you 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

Slide 38

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

Slide 39

Conclusion

• Manage spend to improve the financial health of your organization
  • Rationalize vendors
  • Standardized 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

Slide 40

Further Reading

http://www.unspsc.org/documentation.asp