Spend Matters welcomes this guest post from Anthony Ryan, head of procurement operations at eir, in which he discusses overhauling the telecommunications company’s commodity structure to the UNSPSC taxonomy.
Commodities at eir traditionally have been the domain of the category manager, who classified items into towers of responsibility (e.g., networks, IT, commercial, G&A, etc.). Commodities were also used to drive approval routings, which resulted in each category tower using a prefix to identify a commodity or item as belonging to a relevant tower. This resulted in duplication at the commodity and item level, as well as divergent strategies to identify items.
The inconsistencies and duplication within the commodity structure resulted in significant overhead to compile spend reports. The operations team became dependant on classification lookups by supplier in a spreadsheet table to consolidate spend metrics, instead of being able to rely on the data within the system. Manually manipulating the data into “tower” spend reports meant there was never a clear picture of spend across common commodities (e..g, freight, postage, professional services, computers, etc).
The spend analysis process was not easily extensible, difficult to administer and did not deliver the clearest picture of spend. The need for a standardized method to categorize items was obvious, moving to a structured taxonomy such as the United Nations Standard Products and Services Code (UNSPSC) presented a logical solution. The keys to success included:
- Identifying items that are active and inactive, or ones that haven’t been purchased within a nominal time frame
- Mapping the active items to new commodities
- Commodities can sometimes be determined by the supplier (e.g., supplier X is for computers, supplier Y is for advertising)
- Depending on previous commodity codes, there may be a correlation from an old code to a standard UNSPSC
- Separating items by material items and service items simplifies the coding analysis
- Loading new commodities into your P2P system, loading commodity updates to items from previous points and de-activating old commodities in a TEST environment before applying to production
- We made the mistake of de-activating commodities with no items only to realize later they were parents of child commodities and were required to maintain the integrity of the commodity tree and subsequent reports
Benefits to adopting UNSPSC:
- Clearer consolidated spend reporting by commodity
- Easier navigation by commodity for end users to find items to be requisitioned
- Simplified item categorization and catalogue uploading (suppliers often identify their products by UNSPSC)
- Simplified workload balancing by category managers
- Simplified Intrastat alignment to HS TARIC codes
- Analyze the item master first to determine what items are active/purchased within a nominal time frame
- Deactivate items no longer needed
- It’s easier to load the UNSPSC table with an inactive status and only activate needed commodities (and their parents). Loading the table as active and trying to deactivate commodities not needed will lead to parent commodities inadvertently being turned off