L5M6 Practice Exam Questions with Answers Category Management Certification

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.

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 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 category management, reliable decision-making depends heavily on the analysis of historical spend data. According to CIPS, the key forms of usable historical data include:

Spend analytics: consolidated information showing how much has been spent, on what items, and with which suppliers.

Line item details: transaction-level data that provides specific insight into products or services purchased.

Ledger codes: financial classifications that group expenditure for reporting and control purposes.

These data sets allow category managers to identify trends, supplier dependency, opportunities for consolidation, and potential cost savings. In contrast, inflation rates and spend forecasts are forward-looking metrics, not historical data. Using accurate historical information is critical for preparing budgets, supporting negotiations, and identifying anomalies in expenditure. Organisations that fail to utilise this data often struggle to align their category strategies with financial realities, leading to overspending or missed opportunities.

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]

This is an exploitable customer, according to the Supplier Preferencing Model. Suppliers may attempt to increase profit margins with customers they perceive as less important but who have fewer alternatives and can afford to pay more.

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]

Items such as servers, hardware, and licences fall under the IT (Information Technology) category of spend. Categories are organised into direct and indirect spend, and IT is a common example of indirect spend, which includes goods and services that do not directly contribute to production but are essential to operations. IT spend is strategically important as it supports digital transformation, efficiency, and business continuity. Effective management of IT categories involves considering licensing agreements, hardware refresh cycles, cybersecurity, and vendor lock-in risks. Poor IT procurement strategies can lead to high costs, inefficiencies, and security vulnerabilities. Category managers in IT must also keep up with fast-changing technology markets, cloud adoption trends, and vendor consolidation. Recognising IT as a distinct category ensures that procurement strategies address unique risk factors and maximise value.

This situation represents a Threat within SWOT analysis. SWOT distinguishes between internal and external factors. Strengths and weaknesses are internal to the organisation, while opportunities and threats are external.

Here, the short-term spike in demand is external to Callie’s business. It is also potentially harmful because increased competition for raw materials [rubber, metal, etc.] can lead to higher prices, longer lead times, and supply shortages. Therefore, this is categorised as a threat.

It cannot be an opportunity, as the increase in demand benefits suppliers rather than Callie’s firm. Nor is it a strength or weakness, as those describe factors within the company such as production capabilities or financial resources.

Using SWOT in category management allows managers to anticipate and mitigate external risks while leveraging internal strengths. Recognising this threat means Callie may develop strategies such as dual sourcing, supplier collaboration, or forward buying to reduce exposure.

[Ref: CIPS L5M6 Study Guide, p.122 – SWOT analysis in category management]

A Category Board [sometimes called a Category Council or Committee] is a cross-functional group of stakeholders responsible for overseeing the development and implementation of a category strategy. It brings together representatives from procurement, finance, operations, and other relevant departments to ensure that sourcing decisions align with overall business objectives.

While boards may also review spending or risk, their main role is strategic governance. They provide input into category planning, approve strategies, resolve conflicts, and ensure stakeholder buy-in. This collaboration is essential, as category management is a cross-functional discipline that cannot succeed if procurement operates in isolation.

Options A and B are too narrow, while option D is unrealistic—no body can “mitigate all risks.” Instead, the board ensures risks are recognised and addressed within the strategy.

The study guide highlights the importance of such structures in embedding category management within an organisation’s governance framework.

[Ref: CIPS L5M6 Study Guide, pp.614 – Category Boards and governance in category management]

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.

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.

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.

The correct answer is CSR [Corporate Social Responsibility]. In modern procurement, tenders are no longer evaluated solely on price and quality. Organisations increasingly consider ethical, environmental, and sustainability performance as part of supplier evaluation. CSR factors include labour practices, carbon footprint, use of sustainable materials, and compliance with ethical trading standards.

Other options represent different procurement tools but are not additional evaluation factors:

TCO [Total Cost of Ownership]: A financial analysis tool, not a tender factor.

ITT [Invitation to Tender]: A formal document, not a factor.

PQQ [Pre-Qualification Questionnaire]: Used for initial supplier screening, not tender evaluation.

Integrating CSR into tenders reflects the wider move towards responsible procurement. It ensures suppliers align with the buyer’s values and long-term risk management priorities.

[Ref: CIPS L5M6 Study Guide, p.39 – CSR considerations in tenders]

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]

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.

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.

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]

Cost-out is the most effective approach for reducing supplier costs while increasing value. It involves redesigning products or services collaboratively with suppliers to eliminate costs before they occur. For example, altering product design to use fewer materials can reduce overall costs without compromising quality. This differs from price acceptance (simply accepting a supplier’s offer), price management (controlling or negotiating pricing), or cost-down (gradual cost reduction). Cost-out is proactive and strategic, focusing on long-term value creation rather than short-term savings. For category managers, adopting cost-out strategies requires close supplier collaboration, innovation, and joint investment in process improvements.

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]

The most appropriate relationship type is a Strategic Alliance. The Cost-Out approach involves working closely with suppliers at the design and pre-production stages to eliminate unnecessary costs before they arise. This requires high levels of trust, transparency, and collaboration.

A strategic alliance provides the framework for this partnership, allowing both buyer and supplier to share information, align objectives, and jointly innovate to reduce costs and increase value. For example, suppliers may suggest alternative materials or design modifications that lower costs without compromising quality.

By contrast:

Arm’s length and transactional relationships are too shallow to support cost-out collaboration.

Closer tactical relationships allow more interaction but lack the depth of trust and shared strategy found in alliances.

Strategic alliances are therefore essential where the buyer needs suppliers to contribute their expertise, innovation, and commitment to achieving mutual cost savings and long-term value.

[Ref: CIPS L5M6 Study Guide, p.80 – Cost-out strategies and supplier relationships]

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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)