Spend Analysis – To UNSPSC or NOT UNSPSC

UNSPSC coding is great for numerous industries, but it seems that there is a void in the coding structure when it comes to large financial institutions.  I recently held discussions with several directors of sourcing from large insurance and finance companies while speaking about spend analysis. In each conversation it has come to light that the coding is great for a lot of commodities, but doesn’t address the unique services aspect of their spend.

So how do they accurately classify their spend when UNSPSC isn’t adequate? As all animals do in the world, they adapt and evolve out of necessity. They have created a hybrid of UNSPSC that includes the strong elements of what UNSPSC coding classifies well and included additional coding that relates specifically to their unique services spend.

UNSPSC coding is a strong coding system. However, companies should not be afraid to add to coding structures to meet their needs. Visibility into your spend is only as good as a desired taxonomy’s ability to accurately reflect the nature of your data.

A strong Spend Analysis solution will be able to handle not only classifying to UNSPSC, but also any internal structure as well. A spend analysis solution should be as flexible and scalable as the company it’s doing the work for.

3 Responses to Spend Analysis – To UNSPSC or NOT UNSPSC

  1. Definitely agree upon creating additional drill-down.
    Regardless of the CCS (= commodity coding system)
    + upward compatibility must be in place, and
    + all standards will always be a work in progress.

    In Germany/Europe we have some special CCS for e.g.
    + Building “bau:class” and
    + electronics “ETIM”
    , which will – sooner or later – be merged into ecl@ss (only my expectation).

    We have mainly worked with UNSPSC and ecl@ss.
    Where UNSPSC is more broad and less detailed, ecl@ss tends to be the opposite.
    But it really differs from commodity to commodity. Concerning additional depth there is still plenty of room for improvement/drill-down. A reason example I came across by classifying was “steel sheet” You get:
    + down to “30102504” which is “Steel sheet” in UNSPSC
    + down to “22-24-90-90″ which is “Sheet metal (building material, other, unclassified)” in ecl@ss.

    Don’t mind that ecl@ss is not even considering raw material, if you are buying loads of this – you would probably want to structure a bit more in terms of thickness and size, would you?

    Despite “Spend Analysis”, which is reviving the discussion about standards, we have always received value from a more granular classification of Supplier-Sourcing-Database.

    I will not get started on the differences between UNSPSC and ecl@ss, but both standards have some interesting and valid structural concepts in certain domains, that may as well be combined to new custom taxonomy.

    Logical recommendation seems to be:
    – Run classification mapping for UNSPSC and ecl@ss
    – Evaluate fit and analyze total spend at commodity (4th level)
    – Research on additional CCS that fulfill specific needs, if required
    – Elaborate drill-down (and PLEASE also enter change request at the standard organization you are using, so you may influece development)

  2. I was having this same discussion with my colleague the other day. Its interesting because we both stand on opposite ends of spectrum on this topic. What is the general industry consensus on this?

  3. As far my knowledge is concerned wrt to Spend Analysis, UNSPSC codes do not provide deeper level or exact commodities bought. Ex:- Nitric acid is a commodity bought then you have to map it to 4th level [12.35.23.01] Inorganic acids. But in the industry this codes seems to be very generic. In such cases, I would suggest to develop a solid Custom taxonomy & classify all your respective spend to the Custom taxonomy for generating reports. The Custom taxonomy clearly helps you to differentiate b/w Direct, Indirect & Non-sourceable items. This might require initial domain expertise knowledge about the commodities being bought but would save lot of time in the long run. The reason for promoting Custom taxonomy is that it can directly be used for Sourcing activities.

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