Procurement Glossary
Material group hierarchy: Structured classification for efficient procurement management
November 19, 2025
The material group hierarchy forms the structural backbone of modern procurement organizations and enables the systematic classification of all purchased goods and services. This multi-level categorization creates transparency across the entire spectrum of expenditure and forms the basis for strategic purchasing decisions. Find out below how material group hierarchies are structured, which methods are used, and how you can successfully implement them in your company.
Key Facts
- Multi-level tree structure for systematic categorization of all procurement objects
- Enables donation transparency and strategic bundling of purchasing volumes
- Basis for category management and supplier consolidation
- Supports automated classification and data quality control
- Standardized structures such as UNSPSC or eCl@ss increase comparability
Contents
Definition: Material group hierarchy – meaning and structure
A material group hierarchy represents a structured, multi-level classification of all materials and services relevant to procurement.
Basic structural elements
The hierarchical structure typically consists of three to five levels, starting with broad main categories and ending with specific material types. Each level refines the classification and enables both strategic overviews and detailed operational control.
- Main categories (Level 1): Raw materials, operating supplies, services
- Subcategories (Level 2-3): Functional or technical groupings
- Specifications (Level 4-5): Specific material types and variants
Material group hierarchy vs. product catalog
While product catalogs are primarily used for ordering, material classification focuses on strategic procurement management. The hierarchy aggregates similar requirements regardless of specific manufacturers or suppliers, thereby creating the basis for volume bundling.
Significance of the material group hierarchy in Procurement
As a central control tool, it enables spend analytics, market analyses, and the systematic development of procurement strategies. Structured categorization also supports master data governance and automated processes.
Methods and procedures
The development and implementation of a material group hierarchy requires systematic procedures and proven methods.
Analysis of existing expenditure structures
The first step involves a comprehensive data analysis in Procurement to identify the most important expenditure categories. Historical procurement data is evaluated and prioritized according to volume, strategic importance, and complexity.
- Spend Cube Analysis for Volume Identification
- ABC analysis for strategic prioritization
- Market structure analysis for category definition
Standardized classification systems
The use of established standards such as UNSPSC or eCl@ss ensures consistency and comparability. These systems offer predefined hierarchies that can be adapted to company-specific requirements.
Implementation and rollout
A structured rollout begins with pilot areas and is gradually expanded to all procurement categories. ETL processes in Procurement support the automated assignment of existing material master records to the new hierarchy.
Tacto Intelligence
Combines deep procurement knowledge with the most powerful AI agents for strong Procurement.
Key figures for controlling material group hierarchy
Effective key figures enable continuous monitoring and optimization of the material group hierarchy.
Degree of classification and completeness
The classification rate measures the proportion of correctly assigned materials in the total inventory. Target values of over 95% ensure meaningful analyses and strategic control capabilities.
- Degree of completeness per hierarchy level
- Share of unclassified expenditures in total volume
- Time required for initial classification of new materials
Data quality and consistency
Quality indicators monitor the consistency and accuracy of the classification. Duplicate detection identifies redundant or contradictory assignments that impair the quality of the analysis.
Use and strategic effectiveness
Key figures on the actual use of the hierarchy in procurement processes demonstrate the practical added value. These include the number of hierarchy-based analyses, bundling successes, and cost savings achieved through category-oriented strategies.
Risk factors and controls for material group hierarchy
Various risks can compromise the effectiveness of implementing and maintaining material group hierarchies.
Inconsistent classification and data quality
Inconsistent classifications by different users lead to distorted analyses and incorrect strategic decisions. Data quality KPIs help with the continuous monitoring of classification quality.
- Multiple assignments of the same materials
- Incomplete or incorrect categorizations
- Lack of updates when product changes occur
Overcomplexity and lack of acceptance
Hierarchies that are too detailed can make practical application difficult and lead to low user acceptance. A balance between detail and practicality is crucial for success.
Governance and change management
A lack of clear responsibilities and processes for hierarchical changes can lead to uncontrolled proliferation. Structured master data governance with defined data owners is therefore essential.
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Practical example
An automotive manufacturer implements a four-level material group hierarchy for its global procurement. Level 1 distinguishes between production materials, operating materials, and services. Level 2 divides production materials into body, drive, and electronics. Level 3 specifies, for example, drive components into engine, transmission, and exhaust system. Level 4 defines specific components such as cylinder head gaskets or catalytic converters. This structure enables both strategic volume analyses at the main category level and operational supplier control at the component level.
- Transparency of spending on over 15,000 different types of materials
- Identification of bundling potential amounting to 12% of procurement costs
- Reduction of the supplier base by 30% through category-oriented consolidation
Current developments and effects
Digitalization and the use of artificial intelligence are changing the way material group hierarchies are developed and maintained.
AI-supported automatic classification
Machine learning algorithms enable automatic spend classification of new materials based on descriptions, supplier data, and historical patterns. This significantly reduces manual effort and improves the consistency of classifications.
Integration of sustainability criteria
Modern hierarchies are increasingly integrating ESG criteria and sustainability aspects as additional classification dimensions. This enables targeted management of sustainable procurement and corresponding reporting.
- CO2 footprint categories
- Recycling and circular economy classes
- Social sustainability criteria
Dynamic hierarchies and real-time analytics
Static structures are increasingly giving way to dynamic approaches that automatically adapt to changing market conditions and procurement strategies. Supply market intelligence is continuously incorporated into hierarchy optimization.
Conclusion
The material group hierarchy forms the structural foundation for strategic procurement management and enables data-driven decisions. Its successful implementation requires a balance between detail and practicality, as well as continuous maintenance through clear governance structures. With increasing digitalization and AI support, automated classification will further increase efficiency and open up new analysis possibilities. Companies that strategically develop and consistently use their material group hierarchy create sustainable competitive advantages in procurement management.
FAQ
What is the difference between material group hierarchy and material grouping?
Material group hierarchies focus on the structured classification of all procurement-related objects for strategic control, while product groupings are often sales-oriented and less detailed in structure. The hierarchy primarily serves the purpose of internal procurement optimization, not customer orientation.
How deeply should a material group hierarchy be structured?
The optimal depth depends on the size and complexity of the company. Three to five levels have proven to be effective: structures that are too flat offer too little control detail, while hierarchies that are too deep become impractical. The key is to strike a balance between strategic significance and operational manageability.
What role do international standards play?
Standards such as UNSPSC or eCl@ss offer predefined, proven structures and facilitate data exchange with suppliers and partners. They reduce implementation effort and increase comparability with other companies, but should be adapted to specific requirements.
How is data quality ensured in the hierarchy?
Continuous quality control through automated plausibility checks, regular data cleansing, and clear governance processes are essential. User training, clear classification rules, and technical validations during data import support long-term data quality.
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