Taxonomies Overview
A Taxonomy is the master index for your organization's spend. It is a structured, hierarchical system that organizes complex financial transactions into clear, logical categories, enabling consistent reporting and strategic analysis.
📐 The Hierarchy of Classification
The defining characteristic of a spend taxonomy is its nested structure, which moves from broad categories to granular service items.
- Level 1 (Category): The broadest classification (e.g., IT, Facilities, Professional Services). Used for high-level budget allocation and executive reporting.
- Level 2 & 3 (Sub-Category / Commodity): Increased specificity (e.g., IT -> Software -> SaaS). These levels are used by Category Managers for benchmarking and vendor segmentation.
- Level 4 (Granular Item): The deepest level providing precise detail for pricing and demand analysis (e.g., SaaS -> CRM Software).
Classification Path: The unique string of levels (e.g., Indirect -> IT -> Software -> SaaS) creates the "Row" or target path for every transaction in your dataset.
⚙️ Operational Role: Standardization
The taxonomy imposes uniformity on disparate data sources (ERPs, P-Cards, Accounts Payable):
- Mapping Messy Data: Standardizes inconsistent descriptions (e.g., "Maint. Svc" and "Maintenance Services") into a single, unified path.
- Global Consistency: Ensures a "laptop purchase" is classified identically across different regions, business units, or source systems.
📈 Strategic Business Value
A robust taxonomy is the engine behind intelligent procurement:
1. Spend Visibility & Benchmarking
Aggregates spend across thousands of suppliers into manageable buckets. This allows you to identify exactly where capital is deployed and benchmark costs against industry standards.
2. Vendor Consolidation
Reveals spend fragmentation—situations where the organization uses too many small suppliers for a single commodity. This insight provides the leverage needed to negotiate better volume-based pricing.
3. AI Automation (Agent Dependency)
The taxonomy fuels SpendCraft's AI Agents. A stable, well-defined hierarchy allows machine learning models to automatically classify new invoices with high accuracy, reducing manual auditing.
🏛️ Implementation Standards
Organizations typically choose between two primary approaches:
- Industry Standards: Systems like UNSPSC or eClass for universal comparability.
- Custom Enterprise Schemas: Tailored hierarchies that reflect your organization's specific cost centers and strategic sourcing groups.