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If your data is lacking product classification or has inconsistent or incomplete classification coding, you’re not taking advantage of the savings your data could bring. So how can you update your data to make it work for you?
What is product classification?
Product classification is the organization of your items into categories and subcategories that allows you to group like products and easily search your MRO master data using assigned product codes. There are a number of different classification systems that you can choose from—as well as custom options—to fit your data needs.
Ultimately, what you need is a classification system that categorizes information in a way that makes sense for your organization. For example, if your main distributor uses a specific classification system like UNSPSC, it might be helpful to also use it so that your orders line up.
What classification systems are there?
There are many internationally recognized and commonly used product classification systems available. For example, the United Nations Standard Products and Services Code (UNSPSC) is one of the most widely used classifications systems. The UNSPSC is a global, multi-sector classification system, which provides company-wide spend visibility for cost-effective procurement. The UNSPSC schema is built upon the follow levels:
XX – Segment
XX – Family
XX – Class
XX – Commodity
eCl@ss is another commonly used system. Alternatively, some companies choose to utilize a custom classification system or adopt a service provider’s classification system. Many organizations use custom classification systems to include country-specific tax coding, various industry-specific classification systems, and any custom code set that has been developed and utilized internally.
IMA Ltd. has developed an internal classification system based on decades of project experience and industry expertise. The IMA product classification system is comprised of eight parent categories, which include over 80 sub-categories. Unlike the extremely complex UNSPSC and eCl@ss systems, which cover a wide range of products and services from all industries, the IMA classification system is much less intricate and focuses solely on MRO and indirect materials categories to provide efficient spend visibility.
IMA vs UNSPSC
IMA has developed a best practice internal MRO product group classification system based on a simple category/sub-category schema, which enables high level spend visibility. The IMA product classification use:
4-Digit Code Format
XX Category / XX Sub-Category Structure
8 Parent Categories
Over 80 Sub-Categories
Customization to suit business requirements
In total there are eight parent MRO product groups, further segmented into detailed sub-categories.
IMA classification examples:
MFG name | Part Number | IMA Product Group Code | Category | Sub-category |
Bussman | FRS-R-30 | 0203 | Electrical | Conduit fittings, connectors, boxes, wire devices |
Klein Tools | D507-6 | 0507 | Industrial supplies | Tools & accessories – hand, power, machine |
The United Nations Standard Products and Services Code (UNSPSC) provides an open, global multi-sector standard for efficient, accurate classification of products and services. UNSPSC levels include:
Level 1 – XX Segment
Level 2 – XX Family
Level 3 – XX Class
Level 4 – XX Commodity
UNSPSC classification examples:
MFG name | Part Number | UNSPSC Code | Category |
Century | GF2054 | 26101100 | Electric alternating current AC motors |
Mueller | A15726 | 40183109 | Tube adapter |
Case study
IMA was contracted by a large North American manufacturing company to perform MRO master data cleansing, product classification, and spend analysis. Upon initial review and analysis of their MRO master data and historic purchases, IMA identified the following inefficiencies:
The company was purchasing parts from a multitude of vendors (preferred and non-preferred)
Example: 174 vendors for Bearing & Power Transmission category alone
In several instances parts were being purchased from a non-preferred vendor at a lower price
Example: Item purchased from preferred vendor at $13.63 and non-preferred at $9.53
In several instances parts were being purchased from a non-preferred vendor at a higher price
Example: Item purchased from preferred vendor at $20.29 and non-preferred at $30.66
In several instances the same part was purchased from the same (preferred) vendor at different prices, which varied by 25-60%
Example: Item purchased from preferred vendor at $5.00, $6.41, $9.72, and $12.60
In several instances OEM parts were being purchased instead of generic MRO equivalents for 50-60% higher price
Example: OEM item purchased at $105.24 while generic MRO equivalent was purchased at $49.70
Product classification became a critical element in the overall spend analysis and cost reduction initiative as it enabled the company to segment items by product group and prioritize one category at a time. As a result, the company was able to consolidate and tender their MRO and indirect spend, beginning with the largest spend category: Bearing & PT. In doing so, they were able to establish new preferred vendor agreements, while converting costly OEM items to generic equivalents.
Based on the newly established vendor relationships and re-enforced buyer compliance, the company was able to reduce annual MRO and indirect spend by over 10% in the first year, while significantly improving purchasing and procurement efficiency.
How to transform your data
Once you realize that your data could benefit from product classification, what steps can you take to make change happen?
Introducing product classification (or fixing your existing classification) is one of the many improvements that come from a data cleansing initiative. Data cleansing is the act of taking your existing data and updating it to make sure it’s accurate and contains all the information it needs to be easily searchable and reliable. There are multiple options for beginning a data cleanse, including partnering with a dedicated third-party data cleanse and governance company.
If starting a data cleansing initiative sounds overwhelming, it doesn’t have to be. We’ve discussed the process, timeline, and other details previously in our New Year, New MRO Master Data Project blog post. With the right support and planning, a data cleansing initiative can be smoothly implemented and lead to immediate improvements!
How IMA can help you
IMA is a longtime leader in the data management field, providing comprehensive and customizable options for turning your data into a world class resource. Not only do we offer data cleansing and governance with the most customization of any product on the market, but we have incredibly knowledgeable data experts to help you along the way.
To learn more about what we can do for you, we recommend taking advantage of our no cost, no obligation Data Evaluation! With a few clicks, you can identify the current condition of your data and receive impactful before and after cleansing samples. We also offer a free, easy-to-use ROI Calculator to reveal the potential savings associated with data cleansing.
Learn more about IMA’s product classification and data cleansing services at www.imaltd.com or contact info@imaltd.com to discuss your business requirements.
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