Granada Research

Using the UNSPSC

United Nations Standard Products
and Services Code

White Paper

Why Coding and Classifying Products is Critical to Success in

Electronic Commerce

September 1998, updated October 2001

Table of Contents
GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

Executive Summary............................................................................................ 3

Background: From Electronic Transactions to Strategic Decisions......................... 4

Why Classify Products and Services?....................................................................5

For Finding and Purchasing............................................................................5

For Marketing and Distribution.........................................................................6

Classification versus Identification.........................................................................8

The Characteristics of a Good Naming Convention................................................9

Hierarchical Taxonomy for “Drill Down” and “Roll Up” Analysis..........................9

Unique Item Codes for Schema Modifications and Multi-Language Uses.........10

Scheme is Consistent...................................................................................10

Scheme is Complete.....................................................................................10

Management of Scheme is Responsive to the Marketplace............................10

The UNSPSC Classification................................................................................11

Methodology................................................................................................. 11

UNSPSC: A Hierarchical Structure for Custom Analysis.................................11

UNSPSC Examples......................................................................................12

UNSPSC Design Rules for Consistency........................................................13

UNSPSC Item Numbers for Schema Modification and Multi-Language Uses...14

Compared to Other Popular Codes................................................................15

Using and Getting Value from the UNSPSC Classification....................................16

Using the UNSPSC as a seller of products and services.................................16

Using the UNSPSC as a buyer of products and services.................................16

About Granada Research....................................................................................16

Executive Summary

Coding products and services according to a standardized classification convention is

necessary for streamlining commerce among companies. Products and services that are
unambiguously identified with industry-agreed upon names allows purchasing
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 GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

management to effectively source and analyze expenditures. In addition, machine-

readable product names assists marketing and sales functions to find customers and
provide better customer and distribution channel services.

By inserting the codes in various electronic trade documents and media such as product
Codes automate buy catalogs, Web sites, purchase orders, invoices, inventory/sales advices, and others,
& sell processes computer applications throughout an extended supply chain (seller, buyer, distributor,
independent sales representative, end user) can process transaction data automatically
and can perform management, analysis and decision functions in time-critical and labor-
efficient ways that would not be possible without the codes.

A useful product classification scheme must be hierarchical, so that individual

Hierarchy allows commodities represent unique instances of larger classes and families. Hierarchical
custom analysis organization allows a given company to focus on a level of specificity that best suit its
purposes and situation. Most product coding schemes today, such as the UCC and EAN
bar codes, are not hierarchical and therefore will not serve the purposes of search,
analysis, and product awareness. These identification codes are unable to be rolled up
into categories that are more general and individual codes have no relation to other codes.

United Nations In addition to maintaining a hierarchical taxonomy, a classification scheme must be

Standard Product and constantly maintained (to add new products and modify existing structures to adapt to
Services Code is a changing market offers), it must be responsive to industry (because delays hurt business),
premier open standard and code assignments to products and services must be impartial (to prevent unfairly
promoting one company’s products at the expense of others).

Dun & Bradstreet, a 160-year old leader in developing standards in the information and
financial industries, has taken on the critical role of developing and maintaining a coding
standard for products and services. The United Nations Standard Products and Services
Code, called the UNSPSC, was developed by D&B in conjunction with the United Nations.
The code is the only truly universal coding scheme that meets all the requirements. It is
recommended that companies use this code to electronically identify their own products
and to identify the products that the company purchases in its day-to-day operations.

Whether companies want to identify their products using a code or not, is moot. The rapid
Standardized tags
rise of electronic commerce, particularly over the Internet, and the development of new
will be common
technological capabilities (such as XML, search engine and data-mining tools) makes
coded product documents inevitable. Furthermore, government buying organizations are
requiring it.

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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

Background: From Electronic Transactions to Strategic Decisions

The Internet, EDI and product identification (including bar code) standards have led to
wide scale transaction automation, yet the content of transactions – i.e. descriptions and
names of the products and/or services that are being sought, bought, and delivered – has
largely gone without standardization. Descriptive information about products is important
for the automatic marketing, discovery, and analysis of product purchases – activities that
are becoming common practice within sales and purchasing functions of companies.

With product information in processable Web pages and files, product information
originates with the supplier of the product, and then automatically circulates throughout
networked electronic systems (on the Web, Internet, and proprietary networks). The
product identification tags populate catalogs, directories, search engines, and enterprise
applications that are operated by customers, distributors, publishers, and resellers.

“Meta data” standards for product information benefit all players in a supply chain.

 Enterprise Purchasing Groups and Related Functions. The common identifier

allows receivers of product information to compile and aggregate information from
multiple sources yet maintain a unified framework for search and analysis. Purchasing
groups have difficulty in efficiently managing the numerous low-value purchase
transactions for non-production and non-resale goods inventories and outside
services. In fact, most companies have little knowledge on the spending volumes for
supplies and other non-production goods. Product classification standards allow
purchasing groups to identify and select strategic suppliers and, using controllable
search engines and catalogs, to direct employees to make purchases from these
suppliers automatically.

 Manufacturers, using standardized codes, can leverage the global interconnected

electronic infrastructure (including the Web, Internet, and other inter-company
networked applications) to market their products. Automatic dissemination of product
information reaches greater numbers of potential buyers at a fraction of the cost of
printed collateral and catalogs. In addition, electronically readable codes insure
greater accuracy and productivity in communications with channel partners (including
distributors, dealers, representatives, and resellers). Codes minimize returns, allow
better inventory management and forecasting, and allow the collection of
standardized market share information.

 Distributors, Resellers, and other Channel Partners, who provide pre- and post-
sale technical support on tens of thousands of SKUs, must grapple with disparate
forms of product information collected from hundreds of manufactures with no
common taxonomy. The lack of product information standards makes the current
aggregation and dissemination of such content an expensive and inefficient
proposition - an effort duplicated by each distributor in the channel. With standardized
machine-readable product descriptors, this enormous headache goes away.

Standards for automating transactions is here to stay. Standards for describing the content
of commercial transactions is the next frontier of electronic commerce. Just as standards
such as HTML and TCP/IP have led to the enormous success of the Internet, so too will
product and service coding standards lead to a new level of cybernetic electronic
commerce.

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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

Why Classify Products and Services?

Classifying products and services with a common coding scheme facilitates commerce
between buyers and sellers and is becoming mandatory in the new era of electronic
commerce. Large companies are beginning to code purchases in order to analyze their
spending. A recent study* found that over half the companies surveyed used commodity
codes – several had complex codes of 10 or more categories. Most companies with
procurement card programs have embarked on coding expenditures.

Nonetheless, most company coding systems today have been very expensive to develop.
They typically take up to a year to create and, for each new item coded, it takes on
average an hour and a half to assign a code. A company’s suppliers usually don’t adhere
to the coding schemes of their customers – if they assign codes at all.

Much duplicated effort and expense has gone into making codes. If there was a single
universal coding convention that all companies could draw from – even if the companies
wanted to customize it for specific purposes – there would be a great deal of savings.

For Finding and Purchasing

A product and service coding convention brings many benefits to the purchasing function
of a company. These benefits are listed in Table 1.

Table 1. Classifying products and services supports procurement activities.

Pros Cons
Enables buyers and employee-requisitioners to Requires up-front effort to apply codes (can be
find all suppliers of a given category done by third party)
Enables purchasing managers to analyze
expenditures and perform strategic sourcing
Consistent coding across company divisions,
suppliers, and information systems gives uniform
picture of company expenditures.
Integrates procurement card statement categories
with all purchase transactional data.
One numbering system integrates entire
processing flow – from RFPs, to ordering, to
accounts payable, to general ledger.
Facilitates control over and compliance to
spending limits and authorized commodities by
individuals and departments.
A standardized, already devised code is easy to
implement and saves the company time and
expense in developing its own.

Product discovery. A common naming convention allows computer systems to

automatically list similar products under a single category. When a person is searching for
the category, he or she finds precisely the things being discovered and nothing else. For
any collection of documents, when a pre-set vocabulary of terms is used to index the
*
Carter, Phillip and Karen Spitler. The Use and Characteristics of Commodity Code Systems in U.S. Companies.
Center for Advanced Purchasing Studies. Tempe, AZ.
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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

contents of each document, search precision is aided enormously. Simply using text string
searches on such document collections leads to a great number of irrelevant hits. The
same principle applies to pre-tagging product information records with a pre-set
vocabulary of terms that has been developed by industry participants.

Facilitates expenditure analysis. When every purchase transaction of an enterprise is

tagged with a common set of product identifiers, purchasing managers are able to analyze
enterprise expenditures. With identifiers that are part of a hierarchical taxonomy, individual
purchases can be rolled up into more generic categories (e.g. “safety glasses” can be
rolled up into “shop supplies” or “industrial supplies”). This allows the purchasing group to:

 Consolidate suppliers to simplify and build strategic relationships. A handful of

suppliers to fulfill most of the company’s operational needs leads to efficiencies and
improvements in deliveries, service, and settlement.

 Save 15% to 20% on total spending through volume purchasing agreements. By

guaranteeing high volumes to a select group of suppliers, purchasing departments
can obtain up to 20% discounts on prices. This equates to annual reductions of a
company’s overall spend by 20%.

Control and uniformity across the company. Codes bring a single, uniform view of all
expenditures in a company. It ties together all departments and divisions, including
business functions such as purchasing and settlement. It can be integrated with
procurement card programs. Codes, because they can be used in information systems,
are the essential component for streamlined control of the list of authorized items and
vendors, approval workflows, and allocated dollars for expenditure.

For Marketing and Distribution

When the selling organization applies a standard “tag” on its products and services, that
tag can be automatically processed by other computer applications such as Web search
engines, ERP and purchasing software at customer sites and publishers, catalog
aggregation software, software agents, and the like. With a single act of tagging, the
manufacturer can rapidly propagate its commercial offering to the world.

Table 2. Classifying products and services to support sales and marketing.

Pros Cons
Automatically register your product at Web search Classifying your product along with competitors’
engines and catalog aggregators allows customers to shop for lowest price
Keep customers satisfied by sending pre-coded
catalog files
Minimize ordering errors and returns and improve
productivity in communicating with distribution
channel
Ability to benchmark market share
Capture clean, consistent microdata from sales
channel
Stay current with market trends: standardized tags
are inevitable evolution of electronic commerce
One coding scheme that satisfies all customers

Automatic dissemination and registration of product information. These techniques

bring new opportunities (such as reaching a wider audience at less cost per thousand)

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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

and many perils (the risk of being missed in the noise or being seen as one more supplier
of a commodity item). Some of the hallmarks of marketing in the era of electronic
commerce include:

 Sending electronic product catalogs to your customers, distributors, and channel

partners.

 Registering your products in search engines and third-party electronic marketplaces,

product directories, and electronic trade magazines.

 Advertising your products and company using “meta data” XML tags.

 Preparing your Web site to interact with intelligent agents.

These applications and others require a common naming convention for products and
services.

Distribution channel coordination. In addition to the benefits of an automatic

propagation of product information to the world, coded product information helps
coordinate a distribution channel. When a manufacturer sells its products through third
parties such as distributors, independent sales representatives and dealers, resellers, and
other channel partners, coordinating shipments with these partners and getting accurate
inventory and sales information from them is critical to successful sales.

When the manufacturer and its channel partners use tagged catalogs and trade
documents (such as purchase orders, sales and inventory advices, ship notices, and the
like), the room for error decreases. Everybody is talking about the same products. There is
no confusion. The manufacturer can get accurate sales and inventory data from its
channel and make accurate production forecasts. Channel partners can make precise
requests and orders for new and replacement products. The coordination of the channel
increases.

Channel microdata enables better analysis. Classification of transactions within the

channel also helps the manufacturer to data-mine activity records in the channel. This
allows it to see where demand is rising or falling for specific products, categories,
geographies, etc. If several competing manufacturers use the classification system, the
manufacturers can get aggregated market share information by product code and
category. Again, this helps the manufacturer understand and act more strategically in its
channel.

Makes all products commodities? Designating your company’s product with the same
code used by your competitor seems equivalent to reducing your products to
undifferentiated commodities. This is not the purpose. A common coding convention is
simply the first step in getting your product information into the hands of people with an
interest in the given kind of product. A common name for a given kind of product is the
equivalent of organizing merchandise in a supermarket. All the cereal is in one section.
Produce another. Beauty supplies in yet another. A common naming convention is the
future of shelf space – it is the “virtual shelf space” of electronic commerce. And, like the
power that brands play in the physical world, so too will they play a differentiating role in
the non-physical world, along with other differentiators such as customer service,
packaging, new product development, etc.

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Classification versus Identification

Identification codes (examples are listed in Table 3) are different from classification codes
and will not serve the purpose of product discovery, spend analysis, and product
awareness.

Table 3. Common Identification Codes

Code Things Identified
Social Security Numbers People
UCC/EAN (“bar”) codes Products
Duns Numbers Companies

Identification codes are used to make an unambiguous identification of a thing. The one-
to-one correspondence between the code and the thing is very useful for recording and
linking records of items and actions taken on the items (such as point-of-sale transactions,
inventory management, record keeping).

Classification codes are used to group similar things into common categories. With
classification, similar things are members of a class. Similar classes are members of yet a
more general class or family, and so on. The relationship among things and the
relationship of a thing to its class are information signals that are necessary for item
discovery, spend analysis, and product awareness. In other words, classification codes
are necessary for effectively searching and finding appropriate products and services, for
identifying where expenditures are being made, and for promoting ones products to real
buying prospects.

What’s the difference? To illustrate the difference between identification versus

classification, consider a bar code that identifies a Dell laptop computer. This identification
code cannot be “rolled up” into a more generic category such as “computer equipment”
and has no logical connection with codes designating Compaq, IBM, Toshiba, or any
other brand of laptop computer. Identification codes, therefore, allow for no categorization
of purchases into higher and more generic categories nor do they allow comparisons
among different manufacturers. Chief differences between classification and identification
are listed in Table 4.

Table 4. The differences between classification and identification codes

Classification Code Identification Code

Indicates relation of item to Unambiguously identifies
Cognitive Principle other items, similar and item.
dissimilar
Key Code Characteristic Hierarchical Uniqueness
Show classes and sub- Create a one-to-one
Digits of the code… classes in which item is correspondence between the
member symbol and item. (Digits have
no other meaning.)
Finding goods and services. Tracking and record keeping
Business Function Analysis of activities for
further improvements.

Hierarchy is Only a hierarchical taxonomy of names and categories can provide “roll up,” “drill-down,”
necessary and comparability analysis and evaluation. A taxonomy organizes all the available goods
and services into logical categories. It is critical that the taxonomy have several
intermediary categories between the specific items and most generic classes.
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The Characteristics of a Good Naming Convention

Most commercial product classification systems are one of two types: those that classify
“Thing” versus
things (including services) and those that classify processes that produce things. When
“process”
the purpose is to discover products, to analyze spending patterns, or to increase the
classifications
market awareness of a product, the classification scheme must adhere to the “thing”
orientation (also called demand, commodity, or use orientation and opposite of a supply,
process, or make orientation). A “thing” orientation organizes products and services
according to how they are used as inputs, or purchasable items, for a buying organization.

A scheme for classifying goods and services as things must have a number of
characteristics to enable users to get value from it. Key characteristics are listed below.

Hierarchical Taxonomy for “Drill Down” and “Roll Up” Analysis

A hierarchy allows searchers to “drill down” among a vast group of products and services
to find precisely what they need. It also enables managers to “roll up” a vast group of
purchase records into fewer more general "buckets” of transactions, and perform analysis
that is relevant to the company’s situation. Because it is hierarchical, a universal taxonomy
of products and services can be useful to any kind of company.

For example, in analyzing spending patterns, a buyer at a manufacturing company will find
the category name, “Industrial Supplies” as too general. The person will want to break out
into more specific categories the spending on cleaners and solvents, shop floor supplies,
safety equipment, and so forth. To a buyer at a magazine publisher or a financial services
company, “industrial supplies” will be specific enough, because in toto it probably
represents an insignificant amount of spending. No further break out is necessary.

On the other hand, the name “office supplies” may be specific enough for a manufacturer
but not specific enough for the publisher and financial services company. In other words,
specificity depends on the kind of company and its intentions. A classification hierarchy
ensures that a company can find a meaningful level of analysis that will allow it to take
action.

Hierarchy Enables Buyers to Find a Contractible Group

Because the coding scheme is hierarchical, the company can organize an entire group of
purchase transactions by categories that allow it to take strategic action. Instead of
concentrating on the minutiae of individual product transactions, it can aggregate
transactions to a level that identifies a meaningful “contractible group,” such as “office
supplies” and/or a supplier of office supplies.

A contractible group is a single, self-contained family of products and/or supplier of a

family of products that the buying enterprise can approach to negotiate a single point of
supply. Because a single contract can cover the family/vendor, the enterprise can attain
preferential treatment (including price discounts) in the contract.

Generally speaking, the company wants identifier specificity exactly at the level or breadth
of scope that will allow it to identify a cost-saving course of action. The action may be a
consolidation of suppliers, a supplier negotiation for a volume-purchase discount, or even
an item substitution and/or elimination.

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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

Unique Item Codes for Schema Modifications and Multi-Language Uses

In addition to the hierarchy itself, each specific name of the classification should have a
unique number associated with it. This ensures that no ambiguity will exist as to what
product or service the name refers. This is important when the classification system
serves as the reference code for multi-language translations of product and service
information. It also allows translation of the code into custom taxonomies devised for
proprietary purposes.

For example, in a multinational company that wants to analyze spending across all
divisions and geographies. If it uses product names that are indigenous to each country,
there will be a proliferation of categories that cannot be reconciled easily to common
groups. Using a single code and then translating off of this code eliminates this problem.

Also, a unique identification number of an item allows users to move items around within
the classification hierarchy/taxonomy and not lose its identifying power. This is useful
when companies want to modify the taxonomy to fit internal classification schemes/views
of the data.

Finally, the names and organization of individual products and services into higher more
general groups will change over time. There is quite an array of electronic components
today when 40 years ago the category didn’t exist. Unique numbers allow industries to
migrate the classification scheme forward in time and keep a well documented trail of what
items transformed into new items. In effect, unique numbers allow cross-referencing to
insure consistency.

Scheme is Consistent

Consistency means that a single item is identified in one place only. It means that similar
products can be rolled up into logical higher groupings. A consistent hierarchy allows for
aggregation/disaggregation to the appropriate level of analysis without sacrificing
accuracy.

Scheme is Complete

A good scheme identifies all buyable products and services and places all these items into
a logical taxonomic hierarchy. Users of a classification demand that all relevant categories
and all suppliers be explicitly represented by the classification scheme. This allows
management to analyze and optimize.

Management of Scheme is Responsive to the Marketplace

New products and services are always coming out and others are becoming obsolete and
discontinued. The coding scheme must have an administrative body that quickly and
inexpensively accommodates changing market conditions.

Third-party agencies are the best candidates to manage the scheme. This insures
accuracy, consistency, and integrity. A third party sees the whole product category and
family in a uniform way so that for any given company’s products, codes will be assigned
that are accurate and consistent.

Because a third party has no incentive to differentiate a given product, it will provide
greater integrity in classifying products than an individual manufacturer.

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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

The UNSPSC Classification

The UNSPSC system is an open, global electronic commerce standard that provides a
logical framework for classifying goods and services. The UNSPSC is designed to serve
three primary functions:

Resource Discovery - the identification of relevant suppliers of a

specific product or service

Expenditure Analysis - reporting on the use of funds

Product Awareness - the integration of one’s products or services

into the common nomenclature that prospective customers use to
search for products and services

Methodology

The UNSPSC began as a merger between the United Nation’s Common Coding System
(UNCCS), itself based on the United Nations Common Procurement Code (CPC), and
Dun & Bradstreet’s Standard Product and Service Codes (SPSC). To merge the two
existing coding systems, Dun & Bradstreet (D&B) and the Inter-Agency Procurement
Services Office (IAPSO) within the United Nations Development Programme (UNDP)
established a Code Transition Team. First, the team merged the UNCCS and the SPSC
code structures. Next, they removed duplicate classifications to create the first draft
UNSPSC. The team then validated and enhanced the draft version using both
procurement professionals and public documents (such as company catalogs, industry
publications, and government publications). Then the team consulted industry experts to
ensure accuracy and the common use of names, groups and definitions. Finally, the team
verified the entire coding schema through commercial and public documents found
primarily in collegiate libraries and the internet.

To further ensure coding completeness and accuracy, the UNSPSC coding team cross-
referenced the new UNSPSC to a number of other classifications systems, including the
Common Procurement Vocabulary (CPV), the Standard Industrial Classifications (SIC)
and the Harmonized Tariff System (HTS).

The team documented commonly used terms to avoid the use of synonyms and to clarify
the meaning for the many UNSPSC customers. The definitions of the segments were
worded carefully to be both inclusive of their sub-groups and exclusive of other segments
and their sub-groups.

UNSPSC: A Hierarchical Structure for Custom 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

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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

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

UNSPSC Examples

In the UNSPSC classification, products and services are placed within logical categories
so that people can more easily find what they are looking for and evaluate expenditures on
commonly grouped items.

For example, the commodity “pen refills” is part of a larger class of products, “Ink and lead
refills”, which in turn is part of a family of products, “Office supplies,” which is itself part of a
segment of products, “Office equipment, accessories, and supplies.” Each level of the
hierarchy has its own unique number.

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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

Hierarchy Category Number and Name

Segment 44 Office Equipment, Accessories and Supplies

10 Office Machines and their supplies and accessories

11 Office and desk accessories

Family 12 Office supplies

15 Mailing supplies

16 Office supplies

17 Writing instruments

18 Correction media

Class 19 Ink and lead refills

01 India ink

02 Lead refills

Commodity 03 Pen refills

“Pen refills” = UNSPSC classification 44-12-19-03.

The hierarchy allows people looking for pen refills to use the higher level terms to narrow
their search to the relevant domain that will most likely lead them to the desired item.

In post facto analysis of spending, purchasing managers can evaluate expenditures

according to any level of the hierarchy. Companies that use significant amounts of writing
utensils and supplies, such as architectural, graphic arts, and printing companies, may
want to analyze spending on the class or commodity levels. Such analysis will allow them
to spot opportunities where they can consolidate suppliers, find better sources, negotiate
volume discounts, and similar optimizations of their supply chain. Companies where these
items are not a significant portion of their spending, may elect to analyze spending on the
higher family and segment categories only.
The UNSPSC can be further extended by adding a ninth and tenth digit after the
commodity number. These numbers can indicate business relationships to the supplier
such as rental/lease, wholesale, retail, or original equipment manufacturer (OEM).

UNSPSC Design Rules for Consistency

In situations where there are many uses or many sources for the same commodity, the
classification reflects the dominant use of the commodity within the global marketplace.
Dominant use varies over time and by country or region. The first version of the UNSPSC
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GRANADA RESEARCH PRODUCT CLASSIFICATION USING THE UNPSC

was developed in the USA and Norway. However, the intent of the development team was
to reflect the international use of a commodity, not regional or industry-based applications.

Below are the basic design rules used in the development of the UNSPSC:

 As a first rule, a product or service is classified with others that serve or

support a common function, purpose or task. These segments,
families and classes of commodities are normally found in the same
district, store or aisle.

 As a second rule, a product is classified with others made by a similar

process and often manufactured by the same company or a similar
company.

 Finally if the first two rules do not apply, then the material from which
the product is made will help determine its classification.

The code is constantly being updated to better reflect the myriad of products and services
on the market. Integral to the code is the active participation by companies and trade
groups to keep the commodity items and categories current. The code's subsequent
evolution is based on its many users as they request and approve code additions or code
deletions.

UNSPSC Item Numbers for Schema Modification and Multi-Language Uses

Each level including the lowest “commodity” level of the UNSPSC hierarchy has a unique
number assigned to it. For any given UNSPSC number, you can tell which segment,
family, and class the particular commodity belongs to.
This allows companies to use the UNSPSC convention, but still be free to create their own
taxonomies for their own purposes. With a unique numbering system, automatic
translation from the UNSPSC coding scheme to another scheme is possible with off the
shelf software tools (such as electronic data interchange “mapping software,” data
modeling tools, and even import-export functions on many personal productivity
applications).
Also, having a unique number for a given commodity allows unambiguous translation of
the commodity’s description into any language. Different languages is a common problem
in multinational companies that want to analyze spending on a worldwide basis. A given
item will have several names, depending on the foreign language.

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Compared to Other Popular Codes

Many people ask, “why not use other code symbologies, such as the Uniform Code
Council’s (UCC) bar codes , the European Article Number (EAN) retail bar codes, or the
United States’ Standard Industrial Classification (SIC) codes?” The answer is that these
code symbols are designed for other purposes than for product/service awareness,
discovery, and expenditure analysis. They have none of the characteristics of a good
naming convention as described in section 5.

The differences of some of the most popular commercial codes are outlined in Table 5.

Table 5. Various Codes for the Item “Battery”

Scheme Name Code Instance Chief Characteristics

SIC/NAICS  Identifies broad industry, product, and

3-35-9-11 service categories
(Manufacturing
Elect. Equip  Too high level for effective spend analysis.
Other  Unable to drill down to contractible groups.
Battery)

UCC/EAN 0-39800-08252-7  Product identification code, not classification

code (see section above)
 Identifies branded merchandise by
Type
Manufacturer manufacturer
Item  No item hierarchy; strictly used for
Check identification

NIGP  Used by local government purchasing

11223344556 agencies
 Maintains hierarchy
 Proprietary code (fee-based usage)

Internal/Proprietary 112-003-121  Proprietary codes only useful to a single

company. Expensive to require trading
partners to use same code.
Division
Department  Not maintained.
Expense  Limited or non-existent hierarchy
Item
26-11-17-09  Identifies product and service by category
UNSPSC Segment
Family  High specificity
Class  Multiple hierarchies allow
Commodity
aggregation/disaggregation to any relevant
level of analysis

In addition to the symbologies shown in Table 5, there are many other symbologies
including UNCCS, Harmonized System, Standard International Trade Classification,
Community Procurement Vocabulary, NATO codes, and many industry specific codes.

Only the UNSPSC contains the key characteristics of a good naming convention as
outlined in section 5. The other codes may contain some characteristics, but not all. For
example, the United States’ SIC code structure (to be superceded by the North American

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Industry Classification System by the year 2000) is hierarchical but not to the detailed level
necessary for efficient search and analysis. Table 6 indicates the suitability (or not) of
some of the popular code symbologies for product and service classification.

Table 6. Only the UNSPSC classification meets the requirements for marketing and procurement.
Responsive to
Classification Unique Market – Time
or Identification Numbers for to get New
Code Hierarchy Code? Items Consistency Completeness Code Assigned
UNSPSC 4 Classification 4 4 4 4Days

SIC/NAICS 4 Classification 4 4 4 5+ years

(hi level) (hi level)
UCC/EAN Identification 4 Varies by
Mfr.
NIGP 4 Classification 4 4 Years

Internal 4 Classification Usually

fixed

The retail bar codes of the UCC and EAN conventions have no hierarchies. Typically a
manufacturer buys a block of numbers and assigns unique numbers within this block to its
products. There are no general categories of products and service by which individual
products and services are registered under. Thus, buyers cannot search by a category nor
can they, post facto, perform analysis on spending according to categories.

Using and Getting Value from the UNSPSC Classification

Using the UNSPSC as a seller of products and services.

Assign codes to your product line when publishing electronically.

In the creation of web sites and paper catalogs, use UNSPSC to tag documents.
You may use a third party to do this for you. Your catalog or web site authoring tools may
have this capability.

Request a new code to be created from the UNSPSC Secretariat.

If you cannot find a code within the UNSPSC classification that applies to your product or
service, you can request a new code to be standardized. Within three weeks of receiving
your request you will either have a new code or will be instructed to use an existing code
that the secretariat membership deems appropriate.

Join the UNSPSC Management Organization

This gives you voting and requesting privileges. Membership is currently free. (Subject to
change with appropriate notice in the future)

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Using the UNSPSC as a buyer of products and services.

Ask your suppliers to use the code in product information and transactions.

If you conduct commerce electronically with your suppliers, request that they use the
UNSPSC in all product information and transaction exchanges. If they transmit product
information to you electronically (including catalogs or web sites), ask them to have a
UNSPSC code assigned to each product or service by a certified third-party. If you
exchange electronic purchase orders, invoices, ship notices, and other transaction
messages, ask the supplier to insert the UNSPSC to identify every line item.

Ask technology and software vendors to incorporate the UNSPSC into systems.

The UNSPSC can be embedded in resource planning, purchasing, accounting, database,

and other systems so that stored lists of materials (material masters, bill of material lists,
etc.) are automatically coded with the UNSPSC.

Assign the codes to existing record archives.

This can be done with inexpensive software tools or hiring a third party to come in and do
it for you.

Findings

 Electronic product information that uses standardized product codes facilitates

commerce among manufacturers, their customers, and distribution channel partners.

 Product codes facilitate buying functions by giving structure and precision to product
searches and by enabling purchasing managers to analyze purchasing activities by
varying levels of category.

 Purchasing managers can reduce expenditures on non-production purchases by as

much as 20%. The first step in achieving these savings, however, is coding all
purchase activity with a common classification of products and services.

 Product codes facilitate sales and distribution functions by automatically propagating a

company’s product information to customers, information aggregators, and Web
search engines. Product codes embedded in electronic documents are the future of
“shelf space” in the era of electronic commerce.

 Many identification code symbologies (such as UCC and EAN bar codes) were not
designed to support product awareness, discovery, and spend analysis. These codes
incorporate no hierarchy. Therefore, comparisons among different vendors for a
similar product or rolling up transaction line-items into larger groups (for effective
analysis) is impossible.

 The United Nations Standard Products and Services Code is a symbology specifically
designed for assisting the commercial activities of product awareness, discovery, and
spend analysis. Jointly developed by the United Nations and Dun & Bradstreet, the
UNSPSC incorporates a hierarchy of categories, is easy to customize, is easily
amended to accommodate new products and services, and retains a straightforward
naming process to insure consistency of classification.

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 Third parties that assign the codes to products and services will provide higher quality
data. Third parties, compared to codes assigned by individual manufacturers, are
generally more accurate, unbiased, and trustworthy.

Recommendations

 All companies should consider using the United Nations Standard Products and
Services Code as a routine matter of business.

 Marketing and sales organizations should endeavor to mark-up electronic catalogs,

invoices, and other commercial documentation with the UNSPSC.

 Purchasing departments should incorporate the codes in purchasing systems to

assist employees throughout the company to find and purchase supplies and, for
themselves, to analyze the supplies expenditures of the company.

 To use the codes, use third party coding services to insure data integrity and
accuracy.

 If a company wants to actively participate in developing the UNSPSC, they must

register as a member at www.unspsc.net. Further, if a member also registers as
Segment Technical Advisor, they will have equal voting power in developing and
maintaining the UNSPSC.

Bibliography

Economic Classification Policy Committee. Issues Paper No. 1, Conceptual Issues.

Bureau of the Census. February 1993. www.census.gov/epcd/naics/issues1

Business-to-Business Electronic Catalogs: Market Requirements and Solutions. Granada

Research. San Francisco, CA. January 1998. www.granadaresearch.com

Join the UNSPSC Standards Group and submit code addition or code deletion requests
as well as join the Segment Technical Advisors through the UNSPSC web site www.un-
spsc.net
Carter, Phillip, and Karen Spitler. The Use and Characteristics of Commodity Code
Systems in U.S. Companies. Center for Advanced Purchasing Studies. Tempe, AZ. 1997.
www.napm.org

RosettaNet – An Overview. www.rosettanet.org

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About Granada Research

Granada Research is a consultancy based in Bodega Bay, California that specializes in

business-to-business content-driven commerce systems including indirect procurement
applications, Web and other electronic catalog systems, third-party content services, and
service and repair document management systems.

Through publications and newsletters, consulting engagements, and retained advisory

services, Granada Research assists companies in evaluating opportunities, planning for
market and technology trends, and designing & selecting appropriate information
solutions.

For more information, please call Granada Research:

Telephone: 1-800-588-6099, or 1-707-875-9883
E-mail: [email protected]
Visit our web site at: www.granadaresearch.com

 Copyright, 1998. Granada Research, All rights reserved.

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