L5M6 Category Management Questions and Answers

A Bull Industry is one that is experiencing strong growth, with positive demand and market expansion expected in the future. In financial terms, “bull” markets are characterised by optimism, rising investment, and business confidence.

For ABC Ltd, operating in a high-growth IT sector, this categorisation is appropriate because demand is projected to increase. This means opportunities exist for innovation, supplier partnerships, and long-term strategic sourcing.

By contrast:

Bear industries represent declining markets, where firms face shrinking demand.

Dog and Cow industries are not recognised terms within category management; they are distractors in this question.

Identifying whether an industry is in a bull or bear phase helps Category Managers assess market risks, supplier relationships, and investment priorities.

[Ref: CIPS L5M6 Study Guide, p.150 – Market classifications: bull vs bear industries]

Kearney’s 7 Step Strategic Sourcing Model provides a structured, step-by-step approach for managing sourcing activities. The steps include profiling the category, assessing the supply market, developing sourcing strategies, and implementing them. This model ensures that sourcing is systematic, evidence-based, and aligned with strategic objectives. Unlike tools such as the Kraljic Matrix, which classifies items by risk and impact, Kearney’s model provides an end-to-end process framework for sourcing execution. Similarly, Pareto and Porter’s 5 Forces are useful analytical tools but not procedural sourcing frameworks. For category managers, the Kearney Model is valuable because it emphasises cross-functional collaboration, data-driven decision-making, and continuous improvement. Its structured approach reduces risks of ad-hoc decision-making and ensures alignment with organisational goals. This is why it is a central feature of L5M6 study material and often tested in exams.

Leverage items [low supply risk, high financial impact] are best suited for e-auctions. Buyers can use competitive bidding to drive down prices when multiple suppliers exist.

By contrast:

Bottleneck items [low value, high supply risk] are not suited as choice is limited.

Strategic items require partnership and collaboration, not price-only competition.

Non-critical items don’t justify the effort of auctions.

[Ref: CIPS L5M6 Study Guide, p.97 – Kraljic Portfolio Matrix]

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Supplier 1 → Star Category + Profitability Concern

Supplier 1 holds a large market share in a growing market, which places it in the Star category of the BCG Matrix. Stars are typically leaders in expanding markets and require continuous investment to maintain their dominance. The concern here is not competitive weakness but profitability. Although revenue potential is strong, Supplier 1’s costs have increased by 36% due to rising raw material prices. This erodes margins and threatens profitability despite growth. Stars often generate high cash inflows, but if costs spiral out of control, their ability to sustain investment weakens. Profitability management (e.g., through cost reduction, supplier negotiations, or efficiency gains) is critical to ensuring Supplier 1 continues its growth trajectory and avoids slipping into the “Cash Cow” or “Dog” quadrants in the future.

(Ref: CIPS L5M6 Study Guide, p.117 – BCG Matrix application)

Supplier 2 → Question Mark Category + Gearing Concern

Supplier 2 operates in a fast-growing market but has only a small share, making it a Question Mark in the BCG Matrix. Question Marks are high-risk: they may grow into Stars or fail and become Dogs, depending on how they perform and whether investment supports expansion. The major financial concern here is gearing—Supplier 2 has taken out significant loans and a large mortgage, meaning it is heavily leveraged. High gearing increases financial risk, as debt repayments must be met regardless of market conditions. In rapidly growing markets, high gearing can restrict reinvestment and leave firms vulnerable to interest rate fluctuations or downturns. For Trydo, this means Supplier 2 could face difficulties sustaining its growth, posing supply chain risk. Monitoring debt levels and financial stability is essential before committing to long-term contracts.

(Ref: CIPS L5M6 Study Guide, pp.117–118 – Question Marks and financial analysis)

Supplier 3 → Cash Cow Category + Liquidity Concern

Supplier 3 operates in a small, stable market but commands a strong market share. This places it firmly as a Cash Cow—a business that generates consistent revenue without requiring major investment. Cash Cows fund other areas of a portfolio but face limited growth prospects. The concern here is liquidity. An Acid Test reveals that Supplier 3’s current liabilities are four times greater than its assets, suggesting it lacks sufficient short-term liquidity to meet obligations. This imbalance can result in cash flow problems, even if long-term profitability remains sound. For Trydo, the risk is that Supplier 3 may fail to pay debts or manage day-to-day operations, creating supply disruption. Procurement managers must ensure financial health checks are conducted regularly and consider diversification strategies if reliance on Supplier 3 is high.

(Ref: CIPS L5M6 Study Guide, p.117 – Cash Cows and liquidity issues)

Supplier 4 → Dog Category + Efficiency Concern

Supplier 4 operates in a shrinking market and already holds a low market share, placing it in the Dog category of the BCG Matrix. Dogs are generally unattractive, offering little growth and limited returns. The key concern here is efficiency. Supplier 4 is struggling with capital management issues, such as poor stock turnover and prolonged debtor days. These inefficiencies damage competitiveness and further weaken financial stability. For Trydo, relying on Supplier 4 poses significant risk because inefficiency can lead to delays, reduced quality, and increased total cost of ownership. Unless Supplier 4 improves performance, it may eventually exit the market, leaving Trydo vulnerable. In procurement terms, buyers should avoid long-term commitments with such suppliers and instead focus on exit strategies or alternatives.

(Ref: CIPS L5M6 Study Guide, pp.117–118 – Dogs and efficiency management)

The United Nations Standard Products and Services Code (UNSPC) provides a universal taxonomy for classifying goods and services. Some organisations adopt UNSPC as a standard way of grouping categories for procurement, while others create their own frameworks tailored to business needs. Unlike tools such as the Kraljic Matrix, which is used to assess risk and value, UNSPC is a classification system designed for spend categorisation and reporting. Using standardised codes ensures better data consistency, benchmarking, and spend visibility across organisations, especially in global supply chains. By adopting UNSPC, procurement teams can reduce ambiguity in spend analysis and ensure categories are aligned with recognised frameworks.

Inflation is directly linked to the Economic factor within STEEPLED. It affects costs, purchasing power, and business profitability.

[Ref: CIPS L5M6 Study Guide, p.109 – STEEPLED analysis factors]

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 three correct legal aspects are:

Liabilities [C]: Define responsibility for damages, breaches, or non-performance.

Intellectual Property [D]: Protects innovations, designs, and brand assets in supplier agreements.

TUPE [E]: Transfer of Undertakings [Protection of Employment], a UK law ensuring employees retain rights when transferred between companies.

While sustainability and relationship management are important procurement considerations, they are not specifically legal aspects of contracts. Legal knowledge ensures procurement professionals protect their organisations from financial, reputational, and operational risks.

TUPE is particularly relevant in outsourcing agreements, where staff may move from one employer to another. Procurement managers must ensure compliance with local employment laws to avoid legal disputes.

CIPS stresses that category managers should not act as lawyers but must have sufficient legal awareness to identify risks and escalate issues to legal specialists.

[Ref: CIPS L5M6 Study Guide, p.57 – Legal aspects in procurement contracts]

A SWOT Analysis distinguishes between internal factors (strengths and weaknesses) and external factors (opportunities and threats). Strengths are internal capabilities, resources, or skills that give the organisation an advantage in the market—such as strong supplier relationships, unique expertise, or cost leadership. Weaknesses are internal limitations, such as lack of investment, poor technology, or inadequate processes. These are factors the organisation has direct control over and can improve. On the other hand, opportunities and threats are external influences outside the business’s direct control, such as market trends, legislation, or competitor actions. For category management, applying SWOT allows managers to assess the current position of categories and design strategies that build on strengths and address weaknesses. This analysis also ensures that procurement strategies remain aligned with organisational goals and competitive environments. The correct recognition of internal versus external factors is essential to avoid misdiagnosis and wasted effort.

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Category 1: Highly innovative, many suppliers with similar products at similar price points

Porter’s Force: Competitive Rivalry – High

STEEPLE Factor: Technological

Explanation (150–200 words):

Category 1 operates in a market that is highly innovative and subject to rapid technological change. Innovation means suppliers are constantly developing new features or solutions, making technology the primary STEEPLE factor. Additionally, because there are many suppliers offering similar products at similar price points, competitive rivalry is intense. Buyers can switch easily, and suppliers must compete aggressively on features, pricing, and differentiation.

This combination of high rivalry and technological change creates both opportunity and risk for Randoxx. On one hand, innovation drives new solutions that can be leveraged; on the other hand, it increases pressure to manage supplier relationships strategically. Randoxx must monitor technological trends closely while maintaining competitive sourcing strategies to manage this highly dynamic category.

(Ref: CIPS L5M6 Study Guide – Porter’s Five Forces, p.112–116; STEEPLED Analysis, p.109)

Francis is not correct. Spend alone does not determine the importance of a category. For example, a high-spend category may include non-critical items, while a lower-spend category may include bottleneck or strategic items essential to operations. The importance of a category is determined by its impact on organisational goals and supply risk, not just spend.

Although some organisations mistakenly use Category Management and Strategic Sourcing interchangeably, they are not the same. Strategic Sourcing is a philosophy or approach to procurement, while Category Management is a structured process, applied most effectively through recognised frameworks like Kraljic or Kearney’s 7-step model. Category Management is strategic, not tactical, and focuses on long-term value creation, supply market management, and alignment with organisational objectives. A direct quote from L5M6 states: “Category Management is a process and is applied most effectively when using a recognised framework and supporting tools.” This clarity ensures that organisations do not reduce Category Management to short-term sourcing exercises. Instead, it emphasises cross-functional collaboration, innovation, and market analysis to achieve sustainable value.

The first step in A.T. Kearney’s 7 Step Model of Strategic Sourcing is Supplier Portfolio Generation. The model provides a structured approach to sourcing, beginning with an understanding of current spend and supplier landscape before progressing to strategy development and implementation.

The seven steps are:

Profile spend and supply base.

Develop sourcing strategy and cost comparison.

Generate supplier portfolio.

Select implementation path.

Select competitive suppliers.

Integrate operations with suppliers.

Continuously benchmark supply market.

The reason supplier portfolio generation is first is because procurement must identify potential suppliers and the overall supply base structure before choosing strategies or engaging in competitive selection. Skipping this step risks building a strategy without understanding available market options.

Thus, while options C and D are important later in the process, they cannot occur without first mapping the supplier portfolio.

[Ref: CIPS L5M6 Study Guide, Chapter 1.2 – Strategic Sourcing Models, esp. p.31–32]

The Five Rights of Procurement are fundamental principles ensuring procurement delivers value. They are:

Right product – ensuring goods/services meet requirements.

Right quality – ensuring standards are appropriate.

Right time – goods/services are available when needed.

Right place – ensuring delivery is to the correct location.

Right price – balancing cost efficiency with value.

Options B, C, and D reflect these principles. “Right supplier” and “right relationship” are not part of the traditional five rights, though they are important in broader supplier management. By aligning negotiations with the Five Rights, procurement professionals secure both operational efficiency and strategic value. These principles also provide benchmarks against which procurement performance can be measured.

Pareto Analysis identifies the “vital few” issues that cause the majority of problems, usually presented as the 80/20 rule. While it is useful for prioritisation, its limitation is that it only highlights the frequency of issues and not the root causes behind them. In James’s example, identifying that “website errors” are the top cause of complaints is useful, but it doesn’t explain why the errors occur. Therefore, further investigation such as root cause analysis or process mapping is required to implement corrective action. Another limitation is that Pareto analysis is based on quantitative data only, not qualitative, meaning it cannot capture customer perceptions or subjective insights. This reinforces the need to use Pareto in conjunction with other diagnostic tools for effective problem solving. In practice, category managers must use Pareto as a screening tool to highlight priorities and then follow with more detailed analysis to ensure improvements are sustainable.

SIC [Standard Industrial Classification] codes are numerical codes used to classify industries. For example, 1000 = mining, 1500 = construction. These codes help in categorising spend, benchmarking, and market analysis but are not intended for memorisation.

[Ref: CIPS L5M6 Study Guide, p.82 – SIC codes]

For strategic items, Kraljic recommends further analysis through a 3x3 supply positioning matrix, which compares buyer strength against market strength. This creates three possible strategies: exploit, balance, diversify.

Price acceptance is the least transparent approach because the buyer simply accepts the supplier’s quoted price without investigating its basis or fairness. There is no visibility into the supplier’s cost structure, margins, or pricing methodology.

By contrast:

Price management involves actively managing pricing discussions.

Cost down involves collaborative efforts to reduce costs after production.

Cost out involves eliminating costs before production through design.

[Ref: CIPS L5M6 Study Guide, p.81 – Costing methods]

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]

Category Management delivers multiple benefits for organisations, including:

Fewer supplier contracts, achieved by consolidating spend and reducing fragmentation.

Improved supplier relations, as suppliers are engaged strategically rather than transactionally, enabling stronger collaboration.

Increased innovation, which arises when procurement works closely with suppliers to develop new solutions and efficiencies.

Other benefits highlighted by CIPS include better pricing, improved terms and conditions, stakeholder satisfaction, enhanced risk management, and improved spend visibility. The incorrect options—“less staff required” and “better use of IT systems”—may result indirectly from streamlined procurement, but they are not primary benefits recognised in the category management framework. The true value of category management lies in shifting procurement from a transactional function to a strategic enabler of value. By grouping spend into categories and applying tailored strategies, organisations achieve economies of scale, better market intelligence, and stronger alignment with business objectives.

The key barrier is language and the use of acronyms. In cross-functional, international, or virtual teams, communication challenges can hinder collaboration. Procurement often uses specialised terminology and acronyms that other functions or non-native speakers may not fully understand. This can create confusion, misalignment, and inefficiency.

Geography is less of an issue in virtual teams, as digital platforms enable collaboration across locations. Time and cost can be challenges, but the study guide specifically identifies language and acronyms as barriers.

Effective category managers overcome this by using clear, simple communication and ensuring shared understanding of procurement terms. This reduces misunderstandings and ensures that all team members—finance, engineering, operations—can contribute effectively.

Cross-functional teamwork is central to category management success, but only if barriers to collaboration are proactively addressed.

[Ref: CIPS L5M6 Study Guide, p.64 – Cross-functional teams and barriers]

Risk assessments in procurement often use a likelihood × severity matrix. Risks are scored on scales from 1–5, and the scores are multiplied. A score of 2 indicates a minor risk with low impact and/or low probability. For comparison, risks with scores in the upper range (e.g., 20–25) are considered major risks that demand immediate mitigation. Minor risks, although not ignored, are often monitored rather than heavily resourced. This structured approach ensures procurement teams focus resources on the most significant threats while still maintaining oversight of low-level risks. By categorising risks this way, category managers create clarity for decision-makers and align procurement risk management with enterprise-wide frameworks.

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.

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.