Supply-Side vs. Demand-Side Classification

Classification systems can group entities by how they produce (supply-side) or what markets they serve (demand-side). These are fundamentally different lenses that yield different taxonomies from the same underlying reality.

Supply-side groups by similarity of production processes (inputs, capital, labor, technology. A contract manufacturer and an in-house production facility doing identical work would be classified together.

Demand-side groups by markets served or outputs produced. A company making both medical devices and consumer electronics would be split across categories based on end-user markets.

NAICS explicitly chose supply-side classification because it enables consistent measurement of productivity, labor costs, and input-output relationships. The tradeoff: it’s less intuitive for market analysis.

Neither approach is inherently better. The choice depends on what questions the classification needs to answer. Most classification systems mix both principles without being explicit about it, which creates analytical confusion.

Related: 02-atom—single-principle-classification, 02-atom—classification-as-lens