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What are taxonomies and why they are an important value to our customers.

First, what is a taxonomy?

The word taxonomy (from Greek taxis meaning arrangement or division and nomos meaning law) is the science of classification according to a pre-determined system, with the resulting catalog used to provide a conceptual framework for discussion, analysis, or information retrieval. In theory, the development of a good taxonomy takes into account the importance of separating elements of a group into subgroups that are mutually exclusive, unambiguous, and taken together, include all possibilities. In practice, a good taxonomy should be simple, easy to remember, and easy to use.

Classifying records to a consistent taxonomy allows sourcing and category managers, as well as the Chief Procurement Officers to identify accurately ‘On what/who are we spending’.  This visibility enables procurement organizations to effectively plan the ‘supply market’, and also to associate supply sources with demand sources from supply chain planning. 

Spend classification is the process of assigning transactions to an appropriate category in a given taxonomy.  Incorrect classification can actually distort spend analysis. A spend taxonomy is based on the potential market for supply of goods and services required by the enterprise. 

SAP’s Data Standardization and Enrichment (DSE) uses SAP- AI codes which are a three level hierarchy offering market, industry and purchase levels of aggregation to view spend.   

The primary taxonomy used in SAP’s Data Enrichment and Classification (DEC), is referred to as the Concept ID.  The Concept ID is based on the Electronic Commerce Code Management Association’s (ECCMA) Open Techinical Dictionary (eOTD).    The eOTD is based on the Federal Cataloging System and the NATO Codification System, the systems used to manage the world’s largest shared inventory developed by the Department of Defense of NATO and used today in over 50 countries.

The eOTD allowed the creation and exchange of unambiguous, language independent master data, data that identifies and describes individuals, organizations, locations, goods, services, processes, rules and regulations.

SAP uses the Concept ID code and its corresponding cross-walks to the UNSPSC, CPV, eCl@ss as well as to other taxonomies, such as SAP and customer’s custom codes.   Having access to several taxonomies allows greater flexibility for our customers to make business decisions based on spend management.


In Part III, I will discuss the structure of taxonomies. 

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  1. Former Member
    Hi Marice,
    This is great articulation of the topic on Taxonomies and its usage, I had my opinions slated out in a separate article and a blog following it, where I had demonstrated, how we used the UNSPSC to tackle some need of the hour stuff for the Procurement and Sourcing folks.
    Blog and Article: UNSPSC : A must know for Procurement Consultants
    Links to the blog UNSPSC : A must know for Procurement Consultants
    Link to the article:
    I wanted to understand more from you on the SAP’s Data Enrichment and Classification (DEC)referred to as the Concept ID, how can it be used in the SAP SRM and SAP Sourcing and CLM application landscape when we are deciding on Strategies for Category Management and spend analytics?
    Can you share more light on some further reading.

    My second question is about the way we differentiate Taxonomies from Heirarchies, though I have done a lot of projects in this area, I still dont have a very clear answer, when the customer wants to adopt the taxonomy or the hierarchy approach for classification, what’s your  expert opinion on the same.

    More importantly, am following your sequels and keep them coming, they have really given me some great pointers.
    Follow me on twitter @Tridipchakra and also join my group on linked in, I have sent out an invite to you…keep up the great work and information sharing…Cheers Tridip


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