North American Industry Classification System (NAICS) - established by the federal government as a successor to the SIC (Standard Industry Classification) system that preceded it. Both SIC and NAICS codes are managed by the Federal Census Bureau (more than just counting people every ten years division) and available at census.gov. The idea of all these coding systems is to clearly classify businesses so that economic and industrial data can be compared effectively. It doesn't make sense to compare a bakery to Google, for example, when you are assessing
their liability exposure, if you are an insurance company. So, the government came up with a way to classify businesses to make those comparisons logical. BUT, every classification system is built, by necessity, around the business structures of the day. The original SIC codes, a 4-digit coding system, couldn't keep up to the new industries being born of the computer age. SIC codes are still in use by banks and a few other industries that still only need to classify businesses in bulk. Even NAICS codes is likely to be replaced by two competing systems, federal Product Service Codes (PSCs, also known as Federal Supply Codes (FSCs)) and a new global system,
United Nations Standard Products and Services Code (UNSPSCs). There are also Commodity Codes that are used by some Counties and other agencies (a great search engine for commodity codes is HERE).
NAICS codes are still the primary way that the US Federal Government organizes businesses and posts solicitations. The Federal Government is moving towards greater use of the PSCs, since they focus more on how work is done rather than product sold. For example, it puts companies that providing consulting support together rather than separating them by the industry with which they consult. NAICS codes are currently used to determine whether a business is small for set-aside reasons, but it makes more sense to put consulting companies together rather than putting a vehicle manufacturing consulting business in the same bucket as GM. That's the objective of the eventual move to PSC codes.
When a contracting officer determines the NAICS code for posting a solicitation they want to pick a code that is appropriate to the task and will draw the most qualified competitors to drive prices low, quality high, and to mitigate risk of failure.
NAICS and other code usage:
Typically, each of these code structures is based around a grouping structure that gets more detailed as more characters are added to the right of the first digit.
SIC Codes (4-digits):
Nuha Nazy is the President and Founder of RightSource Services. Nuha is a serial entrepreneur with extensive experience building businesses that depend on talent and intellectual property development at their core.