Commodity Structures Are Not “One Size Fits All”

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Over the last 15 years, I have had hundreds of discussions about commodity structures with CPOs. Invariably, I am asked, “What is the right commodity structure to use?” Or, “Use the UNSPSC structure. It’s an international standard, so it must be the right one.” Or, “You’ve been doing this for years, why haven’t you figured this out by now?”

Once we work with clients for a while they realize that there is no “one size fits all” commodity structure. You can leverage existing structures, but every client has to make some adjustments to any structure based on:

  • What industry they are in (and therefore the products and services they buy),
  • How their business works (how they are organized internally),
  • What vendors they use,
  • How they want to manage your spending, and
  • Past experiences on what works and doesn’t work.

Take the simple cardboard box. Let’s use the example of a 1.2 square-foot, folding box with a removable lid, used largely for the storage of old files. These get used in many different ways at different companies.

The right UNSPSC code for these boxes appears to be: 44111515 “File storage boxes or organizers”. This places this item within the following hierarchy:

  • 44 00 00 00 Office Equipment and Accessories and Supplies
    • 44 11 00 00 Office and desk accessories
      • 44 11 15 00 Organizers and accessories
        • 44 11 15 15 File storage boxes or organizers

The UNSPSC code for an item is useful but, because companies use this box differently, the general classification of the item may also be different as well as its place within the hierarchy

Type of Company Use of Box Top Level Classification
Company with office records (most companies) Storage of files General Office supplies or Records Management supplies
Office supplies company Box is bought from a converting plant and sold to customers Cost of Goods Sold – purchased items
Manufacturer Store parts in the assembly line MRO
Paper company Manufactured for customers Cost of Goods Sold
Records management / warehousing company Sold or provided to customers Cost of Goods Sold – or – Production Parts used in delivery

So even for something as simple as a cardboard box, there is no single commodity structure that is “right” for all companies. You need to think about the structure in terms of what is right for your organization. The last thing you want to hear from users is, “The data jocks in Purchasing have a commodity structure, but it’s just not right.”