What is spend taxonomy?

Spend taxonomy is the classification of an organization's spend in a hierarchical order that usually ranges from 3 to 5 levels depending on the complexity of their spend. They are usually classified as: Level 1 (Group), Level 2 (Family), Level 3 (Category), Level 4 (Commodity); where Level 1 is the highest level which is broken down in Families and Families in turn are further divided into various Categories, and Categories are divided into Commodities. The last level (Commodities) encompasses the unique set of suppliers with similar core competencies.