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Coding scheme in e-commerce
IN the business sector, where mass production and mass distribution are a daily routine, one wonders how they put things together so perfectly that the entire process goes through so smoothly.
If you ever had an experience of online shopping with e-retailers like Wal-Mart, you may wonder how their internal process works. For your interest, it’s all the same as a supply chain and procurement management with the addition of “e” these days. But the question seems to remain how? The reason includes such fields as data standardization, taxonomy, semantics, and ontology.
Coding products and services according to a standardized classification convention is necessary for streamlining commerce among companies. Products and services that are unambiguously identified with industry agreed-upon names allow purchasing management to effectively source and analyze expenditures. In addition, machine-readable product names assist marketing and sales functions to find customers and provide better customer and distribution channel services.
By inserting the codes in various electronic trade documents and media such as product catalogs, Web sites, purchase orders, invoices, inventory/sales advices, and others, computer applications throughout an extended supply chain (seller, buyer, distributor, independent sales representative, end user) can process transaction data automatically and can perform management, analysis and decision functions in time-critical and labor-efficient ways that would not be possible without the codes.
A useful product classification scheme must be hierarchical, so that individual commodities represent unique instances of larger classes and families. Hierarchical organization allows a given company to focus on a level of specificity that best suits its purposes and situation. Most product coding schemes today, such as the UCC and EAN bar codes, are not hierarchical and therefore will not serve the purposes of search, analysis, and product awareness. These identification codes are unable to be rolled up into categories that are more general and individual codes have no relation to other codes.
Identification codes (examples are listed in Table A) are different from classification codes and will not serve the purpose of product discovery, spend analysis, and product awareness.
Identification codes are used to make an unambiguous identification of a thing. The one-to-one correspondence between the code and the thing is very useful for recording and linking records of items and actions taken on the items (such as point-of-sale transactions, inventory management and record-keeping, etc).
Classification codes are used to group similar things into common categories. With classification, similar things are members of a class. Similar classes are members of yet a more general class or family, and so on. The relationship among things and the relationship of a thing to its class are information signals that are necessary for item discovery; spend analysis, and product awareness. In other words, classification codes are necessary for effectively searching and finding appropriate products and services, for identifying where expenditures are being made, and for promoting ones products to real buying prospects.
What’s the difference? To illustrate the difference between identification versus classification, consider a bar code that identifies a Dell laptop computer. This identification code cannot be “rolled up” into a more generic category such as “computer equipment” and has no logical connection with codes designating Compaq, IBM, Toshiba, or any other brand of laptop computer.
Identification codes, therefore, allow for no categorization of purchases into higher and more generic categories nor do they allow comparisons among different manufacturers. Chief differences between classification and identification are listed in Table B.
Only a hierarchical taxonomy of names and categories can provide “roll up,” “drill-down,” and comparability analysis and evaluation. Taxonomy organizes all the available goods and services into logical categories. It is critical that the taxonomy have several intermediary categories between the specific items and most generic classes. In addition to maintaining a hierarchical taxonomy, a classification scheme must be constantly maintained (to add new products and modify existing structures to adapt to changing market offers), it must be responsive to industry (because delays hurt business), and code assignments to products and services must be impartial (to prevent unfairly promoting one company’s products at the expense of others).
The best example for its implementation is UNSPSC. Its history starts from Dun & Bradstreet, a 160-year old leader in developing standards in the information and financial industries, which took on the critical role of developing and maintaining a coding standard for products and services. The UNSPSC (United Nations Standard Products and Services Code) was developed by D&B in conjunction with the United Nations. The code is the only truly universal coding scheme that meets all requirements. It is recommended that companies use this code to electronically identify their own products and to identify the products that the company purchases in its day-to-day operations.
The UNSPSC began as a merger between the United Nation’s Common Coding System (UNCCS), itself based on the United Nations Common Procurement Code (CPC), and Dun & Bradstreet’s Standard Product and Service Codes (SPSC). To merge the two existing coding systems, Dun & Bradstreet (D&B) and the Inter-Agency Procurement Services Office (IAPSO) within the United Nations Development Programme (UNDP) established a Code Transition Team. First, the team merged the UNCCS and the SPSC code structures.
Next, they removed duplicate classifications to create the first draft UNSPSC. The team then validated and enhanced the draft version using both procurement professionals and public documents (such as company catalogs, industry publications, and government publications). Then the team consulted industry experts to ensure accuracy and the common use of names, groups and definitions. Finally, the team verified the entire coding schema through commercial and public documents found primarily in collegiate libraries and the internet.
To further ensure coding completeness and accuracy, the UNSPSC coding team cross-referenced the new UNSPSC to a number of other classifications systems, including the Common Procurement Vocabulary (CPV), the Standard Industrial Classifications (SIC) and the Harmonized Tariff System (HTS).
The team documented commonly used terms to avoid the use of synonyms and to clarify the meaning for the many UNSPSC customers. The definitions of the segments were worded carefully to be both inclusive of their sub-groups and exclusive of other segments and their sub-groups.
The UNSPSC is a hierarchical classification, having four levels (standard levels are four; the fifth one is used for Company’s own enhancement if they want to add their own code within the UNSPSC). The levels allow users to search products more precisely (because searches will be confined to logical categories and eliminate irrelevant hits) and it allows managers to perform expenditure analysis on categories that are relevant to the company’s situation.
Each level contains a two-character numerical value and a textual description.
The UNSPSC can be embedded in resource planning, purchasing, accounting, database, and other systems so that stored lists of materials (material masters, bill of material lists, etc.) are automatically coded with the UNSPSC. Whether companies want to identify their products using a code or not, is moot. The rapid rise of electronic commerce, particularly over the Internet, and the development of new technological capabilities (such as XML, search engine and data-mining tools) makes coded product documents inevitable. Furthermore, government buying organizations are requiring it.
Many people ask why not use other code symbologies, such as UCC bar codes, the European Article Number (EAN) retail bar codes or the US Standard Industrial Classification (SIC) codes?” The answer is that these code symbols are designed for other purposes than for product/ service awareness, discovery, and expenditure analysis. The differences of some of the most popular commercial codes are outlined above.
In Pakistan where e-commerce is in a very initial and infant state, the government should consider classification and Taxonomy module engineering for the EDI (Electronic data Interchange) and for the its heavy Customs, Taxation, Licensing and Import/ Export Channels as well as adoption of proper standards for evaluation of its current market and synchronization with the global market automation.
The writer is a freelance contributor
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