Transformed data should be classified into purchased goods/products or business services for better insights. Organizations also have general ledger (GL) codes that finance uses but aren't always the greatest fit for procurement. As a result, spend taxonomy is a hierarchical structure document that aids in the logical categorization of comparable spending items or services.

Taxonomy can be universal & standard like UNSPSC, SIC or NAICS or Customized taxonomy built by procurement and sourcing teams according to their expenses.
The hierarchy ranges from 3 to 5 levels of categories (generally used 4 Level), from general to specific
Level 1 (Group), Level 2 (Family), Level 3(Category) & Level 4 (Commodity)
E.g., Professional Services (L1) ? Marketing Services (L2) ? Advertising (L3) ? Radio & TV
Standard taxonomies are a wonderful place to start, but large organisations prefer custom taxonomies since they know their business domain and products/services.