In our previous article about tender coding methods in public procurement, we explored the European Union’s CPV, North America’s NAICS, and Canada’s GSIN — three major and commonly used procurement vocabularies. However, these are far from being the only coding systems.
In this installment, we take a closer look at the United Nations Standard Products and Services Code, known as UNSPSC, which is a system with codes for over 50,000 entities covering everything from pencils to computers, as well as NIGP, which is the standard taxonomy for users across 47 states in America, and the UN's ISIC system, which adopts a rather unique approach by focusing on economic activities rather than products.
United Nations Standard Products and Services Code (UNSPSC)
The UNSPSC served as a turning point in classification systems. When it was launched in 1998 by the United Nations Development Programme and Dun & Bradstreet, it was intended to be a truly global system that, unlike its predecessors, did not simply sort products and services into categories, it created a digital taxonomy that transformed how businesses could assess and manage their spending.
Today, the UNSPSC has an impressive range of approximately 22,000 codes but this is not its most remarkable quality – the system also has the ability to turn raw procurement data into strategic insight. Unlike NAICS or GSIN, the UNSPSC functions as both a classification system and a strategic enabler by providing data on spending patterns and identifying cost-saving opportunities.
A UNSPSC code is typically eight digits long and is broken down into four standard categories: Segment, Family, Class, and Commodity. However, there is an optional fifth level called the Business Function that adds two extra digits to the code.
UNSPSC Code Structure
Let’s break down the code 43232304 to demonstrate this:
The first two digits (43) indicate that the Segment relates to Information Technology Equipment. The next two digits (23) confirm that the Family is Software. The Class (23) indicates that this is Data Management Software and the final two digits, (04) indicate that the Commodity is Database Management System Software.
If necessary, an additional 2-digit suffix can be used to indicate that the item the code refers to will be traded. For instance, 11 indicates that it will be traded wholesale while 12 indicates it will be leased or rented.
National Institute of Governmental Purchasing Code (NIGP)
The NIGP code was developed in the mid-80s in the United States through a collaboration between four states – Texas, Oklahoma, Florida, and Illinois and is an example of a state-level procurement system.
An interesting feature that differentiates NIGP from other classification systems is the variable depth of its morphology. Basically, codes can be 3, 5, 7, or 11 digits long with the code being more granular the more digits it contains. This allows procurement professionals to run quick analyses at a more general level (3 and 5 digit codes) while also being able to access more nuanced performance tracking and strategic sourcing initiatives at deeper levels.
Despite being a very localized system, it integrates well with most enterprise resource planning systems.
NIGP has a neat balance between simplicity and specificity which can be demonstrated by deconstructing the code 91327430 to enable a closer look at its structure.
NIGP is structured into four levels – Class (the first 3 digits), Item (digits 4 and 5), Group (digits 6 and 7), and Detail (digits from 8 to 11).
In the case of 91327430, the Class is Construction Services (913) then the next two numbers (27) indicate the Item is Highway and Road Construction while the final two digits (43) indicate the Group is Asphalt Paving. The final digit (0) provides more Detail and indicates Standard Asphalt Paving.
NIGP classes are also separated into two distinct categories with 001 to 899 being used for commodities and 900 to 999 for services.
NIGP is also invaluable for social responsibility initiatives as it makes it easier to track and report on data regarding minority business engagement and historically underutilized business participation.
The International Standard Industrial Classification (ISIC)
ISIC is another coding system but one that approaches procurement in a way that is conceptually different to UNSPSC and NIGP. Rather than using product categories or commodity/services codes, ISIC places less focus on what is being traded and instead pays close attention to how economic value moves through markets.
Let’s analyze an example to understand how ISIC works by looking at a very much in-vogue sample, a company that develops AI solutions.
Under UNSPSC or CPV this activity would fall under the ‘software’ or ‘AI system’ categories whereas ISIC adopts a much broader scope and classifies economic activities — the set of processes within different industries and how they generate value within a particular geography. So, according to the ISIC terms, ‘developing AI solutions’ is too broad to be categorized so a procurement specialist would have to select a code depending on the specific AI solution.
As another example, rather than indicating that a country exports textiles, ISIC would classify the entire textile production process from the raw materials to finished goods. This allows governments and organizations to observe how industries contribute to GDP, employment, or supply chain dynamics.
By classifying data on how value is created rather than simply what is traded, ISIC provides deeper insights into economic trends. It helps policymakers to understand structural changes in industries such as the rise of knowledge-intensive services or the decline of traditional manufacturing.
This is therefore different to trade-focused systems that are primarily concerned with the transactional flow of goods and services across borders. In short, ISIC provides a macro-economic view of how industries interact within and across economies and provides a framework to analyze global capital flows, industrial policies, and economic resilience that trade-focused systems are unable to do.
Final word
Once not considered to be particularly useful, the coding systems used in public procurement have evolved to become indispensable tools that are able to deliver tangible business intelligence benefits. Governments rely on them to streamline awarding processes, enhance transparency, and better match projects with qualified bidders.
Meanwhile, small and large private organizations can leverage these systems to identify new opportunities, monitor industry trends, and gain an edge in what has become an exceptionally competitive field. These classification languages offer equitable access to vital market data and help to narrow the gap between smaller companies, that might otherwise lack resources, and their larger competitors.