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Improve Supply Chain and Procurement Processes with UNSPSC Codes in Microsoft Dynamics AX 2012

With the growth of the business at Ignify, we felt the necessity of having a product code to reduce the effort in our supply chain functions. Efforts were made to generate an in-house product code, a code that took a long time to build and was not capable of increasing efficiency outside the organization in such areas as purchasing and outsourcing products.

Many other businesses have been in the same situation as Ignify – today’s customers demand faster fulfilment at lower cost (especially customers who conduct business through the Web, such as e-commerce). The need to approach procurement more strategically has never been greater. All of these combine to make fast, simple, accurate classification of goods and services an imperative in the marketplace.

Luckily, there is a single coding convention that all companies can draw from so that all speak the same language to speed-up and rationalize processes. And that code is called the UNSPSC.

UNSPSC code, the United Nations Standard Products and Services code® (UNSPSC®), offers a single global classification system. It provides an open, global multi-sector standard for efficient, accurate classification of products and services. The code’s hierarchical convention can be used for:

  • Company-wide visibility of spend analysis
  • Cost-effective procurement optimization
  • Full exploitation of electronic commerce capabilities

The availability of UNSPSC codes is simple; users can search http://www.unspsc.org/  to locate commodity codes that can be used by his company. The user can then browse and download the current version of the code at no cost from the website.

Use of UNSPSC code enables businesses to prevent duplicated effort by allowing every trading partner to code differently. These already available codes also mean that businesses can save time and resources by not needing to create the typical home-grown coding systems, which can take a year or more to develop. 

Advantages of UNSPSC

The main advantages of UNSPSC codes are:

  • 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, and Services.
  • There is a comprehensive categorization of codes, with over 20,000 categories available for businesses to use.
  • UNSPSC codes are responsive to the marketplace.

UNSPSC Design

The UNSPSC code is designed as a hierarchical 4-level tree structure: Segment, Family, Class and Commodity. These levels allow analysis by drilling down or rolling up to analyze expenditures. Each level in the hierarchy has its own unique number.

– 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 dominant usage in the world market.

Please see Figure 1 for a description of each level in the UNSPSC code hierarchy.

UNSPSC Hierarchy

The purpose of the hierarchical structure is to enable collaborative commerce. Hierarchical organization allows a given company to focus on a level of specificity that best suits its purposes and situation.

“Root” = All Products and Services (implied)

The UNSPSC code’s hierarchical structure

Fig 1: The UNSPSC code’s hierarchical structure.

The following figure shows how UNSPSC hierarchy works with a real-life example.

UNSPSC Hierarchy Example

UNSPSC hierarchy  with a real-life example

Fig 2: UNSPSC hierarchy with a real-life example.

According to the above example of UNSPSC code:

44101501 Photocopiers – this is the number code referring to photocopiers.

44103103 Toner – this is the number code referring to toner.

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

44103103 = Toner

UNSPSC Components

  • UNSPSC Code: 8 digits, e.g. 44103103
  • Title: The product that is identified by the code can be given a natural language text title up to 120 characters long, e.g. “Toner”
  • Definition: The product identified by the code can also be given a free-form text definition that gives a concise explanation of what the product is or does
  • Business Function: The 2-digit, optional Business Function codes can identify if the product/service is for Rental or Lease, Maintenance or Repair, Manufacturer, Wholesale, Retail, Recycle, Installation

How to use UNSPSC in Microsoft Dynamics AX 2012 Product?

Let us describe how we can use UNSPSC in Microsoft Dynamics AX 2012 Product. It has the following steps:

  • Creation of UNSPSC Category hierarchy types
  • Creation of UNSPSC Category hierarchy
  • Attaching UNSPSC codes to Products

Creation of UNSPSC Category Hierarchy Types and Category Hierarchies

Go to Product Information Management > Set up > Categories.

Two menus are available:

  • Category hierarchies
  • Category hierarchy types

The navigation  path for category hierarchies and category hierarchy types

Fig 3: The navigation path for category hierarchies and category hierarchy types.

Click Category hierarchies > Category hierarchy types and find UNSPSC and UNSPSC category hierarchy available. This is available out-of-the-box in Microsoft Dynamics AX 2012.

Category hierarchy types setup

Fig 4: Category hierarchy types setup.

Category hierarchies’ setup

Fig 5: Category hierarchies’ setup.

Click Edit to open the UNSPSC Category hierarchy.

Category hierarchy UNSPSC

Fig 6: Category hierarchy UNSPSC

The following page will open to create a New Hierarchy.

UNSPSC Category hierarchy page in edit mode

Fig 7: UNSPSC Category hierarchy page in edit mode.

Click “New Hierarchy node”.

Category hierarchy page to create a new hierarchy node

Fig 8: Category hierarchy page to create a new hierarchy node.

Create a new Segment by entering the Name of the Segment and the Code. In the example below, we have “Office Equipment and Accessories and Supplies” and 44000000.

UNSPSC Segment code created

Fig 9: UNSPSC Segment code created.

Place the cursor on the created segment and click “New Hierarchy node”.

Create a new Family by entering the Name of the Family and the Code. In the example below, we have “Office machines and their supplies and accessories” and 44100000.

UNSPSC Family code created

Fig 10: UNSPSC Family code created.

Place the cursor on the created Family and click “New Hierarchy node”.

Create a new Class by entering the Name of the Class and the Code. In the example below, we have “Printer and facsimile and photocopier supplies” and 44103100.

UNSPSC Class code created

Fig 11: UNSPSC Class code created.

Place the cursor on the created Class and click “New Hierarchy node”.

Create a new Commodity by entering the Name of the Commodity and the Code. In the example below, we have “Toner” and  44103103.

UNSPSC Commodity code created

Fig 12: UNSPSC Commodity code created.

The above steps describe the creation of the Segment, Class, Family and Commodity hierarchy of UNSPSC in Microsoft Dynamics AX 2012.

The user can also add multiple Classes under one Segment, multiple Families under one Class, and multiple Commodities under one Family.

Alternately, the user can use an available inbound port named CatImpService for importing Code categories.

Attaching UNSPSC codes to Products

After creating or importing UNSPSC codes, the user needs to attach them to Products.

To attach UNSPSC codes to Products, the user needs to go to Product information management > Area page > Released Products.

Select a Product and click Product category.

Released Product page in Microsoft Dynamics AX 2012

Fig 13: Released Product page in Microsoft Dynamics AX 2012.

Select UNSPSC as a Category Hierarchy from the dropdown, and also as a Category from the dropdown.

Adding Category Hierarchy to a Product

Fig 14: Adding Category Hierarchy to a Product.

Adding Category to a Product

Fig 15: Adding Category to a Product.

Category Hierarchy and Category added to a Product

Fig 16: Category Hierarchy and Category added to a Product.

The Value of Implementing UNSPSC

Implementation of UNSPSC helps to collaborate with customers or suppliers through the use of a common classification system. With this collaboration, businesses reduce inventory through product standardization, and automate the gathering and analyzing of spend data – which allows a uniform, enterprise-wise view of spend. It also helps to run centralized procurement functions, leverage volume for better pricing, and reduce off-contract spend at higher prices.

Value for Suppliers

Implementation of UNSPSC helps facilitate sales function, particularly through Internet exchanges. It helps suppliers to qualify as a preferred supplier to customers with e-procurement initiatives; speed up new product introductions using Web services, XML, etc.; and facilitate globalization of the business. It helps collect consistent sales data across channels and regions, as well as help businesses collaborate with customers to improve contract compliance, increasing the supplier’s market share – a win-win.

Conclusion

Given that this functionality is available out-of-the-box in Microsoft Dynamics AX 2012, every business who has implemented the system can gain the benefits of using UNSPSC code in their Product. If you have any questions about using UNSPSC code in Microsoft Dynamics AX 2012, or questions about Microsoft Dynamics AX 2012 in general, please email us at dynamics@ignify.com.

Partha Chattopadhyay is a Manager in the Microsoft Dynamics AX practice at Ignify. Ignify is a leading provider of Microsoft Dynamics ERP solutions to mid-market and Enterprise businesses. Ignify has been ranked as Microsoft Partner of the Year Winner in 2012, 2011 and 2010, and in the Microsoft Dynamics Inner Circle, Microsoft Dynamics Presidents Club in 2009. Ignify has offices and team members in Southern California, Northern California, Arizona, Tennessee, Illinois, Washington, Canada, Singapore, Malaysia, India, Philippines, and Jakarta.

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