What Drives UNSPSC Coding and Why Is It Needed?

Although UNSPSC may be a mouthful to say, this internationally known acronym represents one of the most commonly used product and service classification systems in the world. These five little letters stand for the United Nations Standard Productsand Services Code, which is a hierarchical system that is an open, global multi-sector standard for accurate classification of products and services.

While many people are familiar with UNSPSC, one of the most frequently asked questions that we hear at IMA is “what drives UNSPSC coding and why is it needed?” Well, to answer the question, the UNSPSC code is comprised of four levels, which include Segment, Family, Class, and Commodity. In some cases, companies will choose only a select group of UNSPSC codes for all of their products and services to fall under, whereas others will take full advantage of the entire code set, right down to the fourth level. In any case, when IMA completes a coding project, each item must first be assigned a proper Noun-Modifier pair using the IMA Noun-Modifier Dictionary. By assigning a Noun-Modifier, IMA has the key characteristics to properly identify Segment, Family, Class and Commodity for each individual item.

For example:

Raw Client Data: 6205-2rs BRG, Ball, SKF

IMA Noun-Modifier: BEARING, BALL

31000000 – Manufacturing Components and Supplies

31170000 – Bearings and Bushing and Wheels and Gears

31171500 – Bearings

31171504 – Ball Bearings

Without a strategic classification system, companies are basically managing inventory blindly, without any accurate statistics to support their business decisions. As a result, excess inventory continues to grow, parts are sourced from a multitude of suppliers, and items are purchased at a premium price. However, when items are properly classified and UNSPSC codes are used to their full potential, companies can reap significant cost savings benefits through accurate spend analysis, inventory reduction and procurement optimization.

Regardless of whether you choose to use UNSPSC or your own custom coding system, it is important to establish and maintain some type of classification schema throughout your item master in order to conduct an efficient and accurate spend analysis. Although it may seem like just another number attached to each item, this little number can provide a lot of insight when making critical business decisions.

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