L5M6 Category Management Question and Answers

In the automobile industry, the most logical method for structuring categories is by part. Large manufacturing organisations, such as Ford or Toyota, procure thousands of parts and materials from hundreds of suppliers. To manage this complexity effectively, they segment procurement responsibilities into categories such as engines, tyres, glass, electronics, or body frames. This allows Category Managers to develop deep expertise in their assigned areas, improving supplier relationships and value delivery.

Other approaches are less effective:

Alphabetical categorisation is impractical and arbitrary, providing no strategic value.

By spend creates imbalances, as high-value categories would attract disproportionate workload and risk, leaving others underrepresented.

By supplier could lead to inefficiency and over-fragmentation, as suppliers often provide multiple types of products.

The study guide stresses that categorisation must allow procurement teams to be efficient, balanced, and capable of strategic focus. By organising categories by part, managers can align more closely with engineering and production needs, ensuring better cross-functional collaboration.

[Ref: CIPS L5M6 Study Guide, p.3 – Defining categories in Category Management]

Direct costs are those directly attributable to the production of goods or services. For BikeFace, raw materials such as rubber (used in tyres) and labour (workers assembling bicycles) are direct costs because they contribute directly to finished products. By contrast, advertising spend and IT systems are indirect costs as they support operations but do not directly form part of the bicycle. Category managers must distinguish between direct and indirect costs to design effective sourcing strategies. Direct categories often warrant closer supplier collaboration and longer-term contracts due to their critical role in production.

The correct sequence of Category Strategy Development is:

Create the strategic plan – outlining objectives, tactics, and desired outcomes.

Develop a progress tracking plan – defining performance measures and milestones.

Define resources needed – identifying staff, skills, and financial support required.

Conduct a roadshow – presenting the strategy to stakeholders and gaining buy-in.

This order ensures strategies are clearly defined before resources are committed and that tracking mechanisms are in place to measure success. The roadshow is critical to gain organisational support and alignment, ensuring all stakeholders understand the plan and contribute to its implementation. Mis-sequencing these steps can result in wasted resources, poor engagement, or ineffective execution. Category managers must follow this structured approach to maintain accountability, transparency, and long-term success in strategy implementation.

Line item details provide specific transactional information about a purchased product, such as the quantity ordered and the price paid. This information is critical for category managers who rely on spend data to analyse patterns, negotiate supplier agreements, and benchmark costs.

Other details such as functionality or components are not typically captured in line item data. These relate more to specifications and technical design documents rather than financial records.

By analysing line item data across multiple purchases, category managers can identify trends such as bulk-buying opportunities, price fluctuations, and supplier performance. It also assists in spend analysis, which is a fundamental step in category management for mapping categories and identifying cost-saving opportunities.

[Ref: CIPS L5M6 Study Guide, p.134 – Line item detail in spend analysis]

The correct response is No – rivalry between existing suppliers is high. Exit barriers refer to the difficulty suppliers face when attempting to leave a market or industry. These barriers may include high investment in specialised assets, contractual obligations, redundancy costs, or reputational damage. When suppliers are unable or unwilling to exit, they remain within the industry regardless of declining profitability. This forces them to compete aggressively to retain market share, which increases rivalry among existing firms.

Options A and B are incorrect because the question relates to rivalry, not directly to buyer or supplier power. Option D is also incorrect because exit barriers do not influence new suppliers entering; they affect current suppliers trying to leave.

A practical example is the oil and energy industry, where huge capital investments make it very costly to exit. Companies stay even during downturns, resulting in fierce rivalry.

[Ref: CIPS L5M6 Study Guide, p.114 – Porter’s Five Forces: Exit Barriers and Rivalry]

In the BCG Growth-Share Matrix, a dog is a business unit or product that has both a low relative market share and a low growth rate. Such items typically generate low or no profits and are often seen as candidates for divestment or discontinuation. Unlike cash cows which generate strong cash flow despite slow growth, or stars which dominate high-growth markets, dogs occupy a weak position in the portfolio. Managing these categories strategically is critical because maintaining them often consumes more resources than the value they return. Organisations need to assess whether retaining these products provides any strategic advantage, such as complementing other offerings, or whether resources should be reallocated. This is why category managers use tools like the BCG Matrix to evaluate the positioning of spend categories and align them with organisational strategy.

The services industry does not have a specific SIC code because it is highly diverse, spanning multiple activities that do not fit neatly into a single classification.

[Ref: CIPS L5M6 Study Guide, p.88 – SIC classification limitations]

The correct term is Cost Out, a proactive cost management approach where the buyer collaborates with the supplier during the design phase to eliminate unnecessary costs before they arise. This ensures efficiency and value creation throughout the product lifecycle. For example, designing packaging to minimise waste or using standardised components to avoid expensive customisation.

This differs from:

Cost acceptance, where the buyer accepts the supplier’s price without analysis.

Cost engineering, a broader process of optimising costs through design and process evaluation.

Cost down, which typically involves reducing costs after production by analysing processes, renegotiating contracts, or improving efficiency.

Cost Out is especially relevant for strategic or high-value categories where innovation and collaboration with suppliers can generate long-term savings. It is consistent with category management’s emphasis on strategic supplier partnerships.

[Ref: CIPS L5M6 Study Guide, p.80 – Cost Out vs Cost Down strategies]

In construction, indirect costs include items like workshops, safety facilities, and design engineers. These are necessary for operations but not directly tied to a single output.

[Ref: CIPS L5M6 Study Guide, p.90 – Indirect cost examples by industry]

These items follow a cyclical demand pattern, meaning that sales fluctuate in predictable cycles—typically aligned with seasons or climate conditions. For example, demand peaks in summer and falls sharply in winter. Recognising cyclical patterns allows procurement professionals to plan supply and inventory effectively, avoiding both shortages during peak demand and excess stock during low demand periods. This type of forecasting is particularly important in industries such as fashion, tourism, and consumer goods. Failing to account for cyclical demand can lead to missed sales opportunities or increased storage costs. In category management, understanding demand cycles ensures efficient resource allocation, supplier scheduling, and financial planning. It also supports collaborative planning with suppliers to ensure capacity aligns with market needs.

A black swan event is an unexpected and rare occurrence with significant impact. Examples include the 2013 horse meat scandal in the food industry, which was unforeseen and highly disruptive.

Supplier 1 → Price Acceptance + Bottleneck

Supplier 1 is the sole supplier of a critical item, and XYZ has confirmed through market research that there are no substitutes available. This places Supplier 1 in the Bottleneck quadrant of the Kraljic Matrix, which is defined by high supply risk but low profit impact (or limited ability to influence price). In bottleneck situations, buyers have limited leverage, making them price takers rather than price setters. That’s why the appropriate cost approach here is Price Acceptance—XYZ must accept the price dictated by the supplier because of the absence of alternatives. Procurement’s role becomes risk mitigation, ensuring continuity of supply rather than focusing on negotiation power. The recommended strategies include maintaining strong supplier relationships, holding safety stock, and monitoring supply risks. Price cannot be influenced significantly, so procurement must accept the terms, reflecting a bottleneck scenario.

(Ref: CIPS L5M6 Study Guide, pp.80–83, 97–100 – Cost ApproachesKraljic Matrix)

Supplier 2 → Cost Down + Leverage

Supplier 2 provides items that, while not purchased in large volumes, have a high impact on profit and carry a low supply risk. These characteristics fit into the Leverage quadrant of the Kraljic Matrix: high profit impact, low risk. In such cases, buyers hold strong bargaining power and can use competition or collaborative cost reduction measures to secure better value. The chosen cost approach here is Cost Down, which involves working with suppliers to systematically reduce costs without reducing value. XYZ’s long-term relationship with Supplier 2, combined with a focus on identifying where costs could be lowered, matches the cost-down philosophy. Examples might include value engineering, supplier process improvements, or volume consolidation. Leverage items are ideal for competitive sourcing, e-auctions, and bulk negotiation. By applying a cost-down approach, XYZ can ensure sustained profitability while keeping supply risk under control.

(Ref: CIPS L5M6 Study Guide, pp.80–81, 97–100 – Cost ManagementLeverage items)

Supplier 3 → Price Management + Non-Critical

Supplier 3 provides indirect goods such as stationery, which have little impact on company profits and are purchased regularly in small quantities. These fit into the Non-Critical quadrant of the Kraljic Matrix, which is characterised by low profit impact and low supply risk. In these cases, procurement’s focus should be on administrative efficiency and price management, rather than extensive strategic negotiations. The chosen cost approach here is Price Management, since XYZ meets with the supplier regularly to discuss pricing and bulk discounts. This approach ensures that, although the spend is low-value, the company avoids unnecessary waste or inflated costs. Tools such as catalogues, e-procurement systems, or framework agreements are commonly used in this quadrant to manage spend efficiently. Price management helps free up procurement resources for more strategic categories while still ensuring best value in non-critical areas.

(Ref: CIPS L5M6 Study Guide, pp.80–82, 97 – Non-critical items and price management)

Supplier 4 → Cost Out + Strategic

Supplier 4 is supplying a one-off capital expenditure item. XYZ has engaged in months of negotiations regarding specifications, and both parties are collaborating to reduce costs before manufacturing begins. This aligns perfectly with the Strategic quadrant of the Kraljic Matrix, where items have high profit impact and high supply risk. Strategic items require strong, long-term partnerships and close supplier collaboration. The appropriate cost approach here is Cost Out, which focuses on eliminating unnecessary costs during the design and specification stages, before production. This proactive approach ensures that efficiency and value are embedded in the product from the outset. Cost-out strategies often involve redesign, engineering collaboration, and innovation to reduce total cost of ownership. In such relationships, trust and partnership are critical, since both buyer and supplier must work together to achieve shared value and risk reduction.

(Ref: CIPS L5M6 Study Guide, pp.80, 97–99 – Strategic items and Cost-Out approach)

Supplier power is strong when buyers have fewer choices and suppliers have leverage. This occurs where:

No substitutes are available [A]: Buyers are locked into what suppliers provide, increasing supplier power.

Supplier’s customers are fragmented [B]: When customers are fragmented [many small buyers], they cannot collectively negotiate, so suppliers hold more power.

Forward integration is possible [D]: Suppliers can bypass buyers and sell directly to the end customer, which gives them negotiating strength.

Options C and E relate more to buyer power:

Switching costs are low [C]: This reduces supplier power as buyers can easily move.

Undifferentiated products [E]: This strengthens buyer power since products are interchangeable.

[Ref: CIPS L5M6 Study Guide, p.116 – Porter’s Five Forces model]

Forecasts must be dynamic and updated when major internal or external changes occur. Losing a key customer significantly reduces demand, meaning forecasts must be lowered accordingly. Similarly, if a key supplier ceases trading, supply constraints may alter procurement strategies, requiring adjustment to supply and spend forecasts. Likewise, significant price inflation impacts both demand planning and budgeting, as organisations must reassess affordability and potentially seek alternatives. On the other hand, relocating operations or new health and safety legislation may change processes, but they do not directly influence demand, supply, or pricing forecasts. For category managers, regularly reviewing and amending forecasts ensures procurement strategies remain relevant and aligned with market realities. Without this adaptability, organisations risk supply disruptions, overestimation of needs, or financial misalignment.

The two most important factors when assessing supply chain risks are Severity and Likelihood. These are typically measured on a scale [e.g., 1–5], with the product of the two giving a risk score.

Severity measures the potential impact on the organisation if the risk materialises. For example, supplier insolvency may severely disrupt operations.

Likelihood assesses the probability of the event occurring.

The combination of severity × likelihood determines whether a risk is low, medium, or high, and informs mitigation strategies.

Other options are less central:

Location may influence likelihood but is a sub-factor.

People involved is not a formal assessment criterion.

Cost can be a consequence but is part of severity, not a separate factor.

Using severity and likelihood ensures risks are prioritised based on both impact and probability, allowing category managers to allocate resources effectively.

[Ref: CIPS L5M6 Study Guide, p.40 – Risk assessment and mitigation protocols]

Within Category Management, sub-categories are often referred to as commodities. These are narrower groupings within a category that focus on specific goods or services. For example, within the Construction category, commodities might include raw materials, subcontracted labour, or specialist equipment hire. Recognising commodities helps procurement apply tailored strategies that address their specific market dynamics and risk profiles. It also provides clarity when developing category plans, as different commodities may require different sourcing and supplier management approaches. By managing at both category and commodity levels, organisations can strike a balance between broad strategic alignment and detailed tactical execution.

The correct score is 25, which is the highest possible risk score on a 1–5 scale. This reflects a major risk with both severity [5] and likelihood [5] rated as high. The risk assessment methodology multiplies these two factors [5 × 5 = 25] to produce a risk rating.

This scoring system enables supply chain managers to rank risks and prioritise mitigation strategies. A risk scored at 25 requires urgent attention, such as developing contingency plans, dual sourcing, increasing safety stock, or renegotiating terms with suppliers.

Lower scores such as 1, 5, or 10 indicate lower overall risk exposure, but in this case, the combination of long geographical distance, reliance on a low-cost country supplier, and criticality of the order elevates the risk to the maximum score.

Risk assessment tools like this are central to category management because they support proactive risk mitigation rather than reactive crisis management.

[Ref: CIPS L5M6 Study Guide, p.56 – Risk assessment scoring and protocols]

This item is classified as a Bottleneck item in the Kraljic Portfolio Matrix. Bottleneck items are low-value in terms of spend but carry high supply risk, often because there are very few suppliers or a monopoly situation.

In this case, Frankie Burgers faces a monopoly supplier, meaning supply risk is high. Even though the item is low cost, its unavailability could disrupt operations, creating significant vulnerability.

By contrast:

Leverage items are high-value but low risk, suited for competitive sourcing.

Strategic items are high-value and high-risk, requiring partnerships.

Routine items are low-value and low-risk, suitable for automated procurement.

Category managers facing bottleneck items often mitigate risk through strategies such as developing alternative suppliers, stockpiling, or long-term contracts to secure continuity of supply.

[Ref: CIPS L5M6 Study Guide, p.157 – Kraljic Matrix applications]

The Adaptor competency reflects resilience and flexibility, particularly the ability to remain calm under pressure and handle criticism constructively. CEB Research identifies six key competencies for high-performing procurement teams: functional expert, influencer, results seeker, innovator, adaptor, and complier. Each competency contributes to overall effectiveness. Adaptors are especially important in procurement because markets are dynamic and supplier relationships can be complex. Their ability to adjust strategies in the face of change ensures procurement remains resilient. For category managers, adaptability supports risk management, stakeholder engagement, and effective negotiation. Without this competency, procurement risks being rigid and unresponsive to changing circumstances.

Category Management is a strategic approach to procurement. According to CIPS, it is defined as “a rigorous fact-based, end-to-end process for proactively collaborating with stakeholders to develop and implement sourcing strategies that deliver significant value from an organisation’s external spend.”

Unlike tactical or reactive procurement, which focuses on immediate needs or firefighting, category management emphasises long-term planning, data analysis, supplier relationships, and alignment with business objectives. It goes beyond simply planning purchases in advance [which could apply to “planned procurement”] by integrating market intelligence, risk assessment, and value optimisation.

Being strategic means that category management seeks not only cost savings but also innovation, sustainability, and resilience. It requires cross-functional collaboration and the use of analytical tools like Kraljic matrices, total cost of ownership, and supplier segmentation.

Therefore, the most accurate categorisation is strategic procurement, not merely tactical or planned.

[Ref: CIPS L5M6 Study Guide, p.2 – Category Management as a strategic approach]

Total Cost of Ownership [TCO] refers to the full cost of acquiring, operating, and maintaining an item over its entire lifecycle—not just the purchase price. For Steve, the relevant elements are:

Purchase Price [A]: The initial acquisition cost.

Maintenance and Downtime [D]: Costs of repairs, spare parts, and losses during equipment downtime.

Training [E]: Expenses incurred in training staff to use new systems or equipment.

By contrast, Location and Supplier Relationship are important considerations but cannot be quantified as direct financial costs in the same way.

The TCO model is often illustrated as the Cost Iceberg, where the purchase price is only the visible tip, while hidden costs [e.g., energy use, repairs, obsolescence, disposal] represent the bulk. Understanding TCO enables procurement to make more informed decisions, ensuring long-term value rather than focusing narrowly on upfront cost.

[Ref: CIPS L5M6 Study Guide, p.9 – TCO and the Cost Iceberg]

The correct terminology is bargaining power of buyers, not "threat of buyers". Porter’s Five Forces are:

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

Threat of substitutes

Within the Boston Consulting Group [BCG] Matrix, a Cash Cow represents a product or business unit that holds a high market share in a low-growth market. These products typically generate strong and stable cash flows because they dominate their markets with little new competition. Although growth opportunities are limited, these units require minimal investment and often fund other parts of the business.

For example, a well-established soft drinks brand in a mature market is a classic cash cow. While sales are stable and market share is high, growth potential is low due to saturation. This differs from:

Stars [high share, high growth] which require significant investment.

Question Marks [low share, high growth] which may or may not succeed.

Dogs [low share, low growth] which are often candidates for divestment.

In category management, identifying cash cows helps procurement teams prioritise efficiency and cost management, ensuring these categories remain profitable without heavy strategic input.

[Ref: CIPS L5M6 Study Guide, p.117 – BCG Matrix and procurement strategy]

The first stage of Kearney’s 7 Step Model is profiling the category, where data is gathered about spend, suppliers, and demand. This profiling provides the foundation for preparing future projections and budgets. It ensures that procurement understands not only how much is currently being spent, but also the likely future requirements of the organisation. While finding alternative suppliers and benchmarking may emerge later in the process, the primary outcome of category profiling is reliable information for budgeting and strategic decision-making. This stage links procurement with financial planning and helps build business cases for category strategies. Without accurate data profiling, subsequent sourcing strategies may be flawed.