CIPS L5M6 - Category Management

A Bill of Materials [BoM] lists the components, raw materials, and parts required to produce a product. These represent direct costs as they directly contribute to the finished item. While labour and overheads may also be direct costs, they are not usually in the BoM.

[Ref: CIPS L5M6 Study Guide, p.83 – Direct vs Indirect Costs]

A bull industry is one that is experiencing sustained growth, driven by technological innovation, consumer demand, or favourable market conditions. The opposite is a bear industry, which is in decline. The terms are borrowed from stock market language but are also used in category management to describe the overall trajectory of an industry. For ABC Ltd, operating in a bull industry means it must prepare for higher demand, increased competition, and potential supplier shortages. This requires a proactive category strategy that focuses on securing long-term supplier relationships, investing in innovation, and managing risks associated with rapid growth. Recognising industry cycles ensures that procurement strategies are forward-looking and aligned with long-term organisational objectives. Misclassifying an industry’s trajectory could lead to missed investment opportunities or poor resource allocation.

A General Ledger [GL] is the central accounting record used by businesses to prepare financial reports. It categorises all financial transactions into cost codes, allowing managers to track expenditure, revenue, assets, and liabilities.

For category managers, the General Ledger provides visibility into spend categories. This information supports spend analysis and helps in mapping organisational costs against suppliers, categories, and business functions. It differs from line item detail by offering a higher-level financial view.

Other options are misleading:

Option A [tenders] relates to e-procurement platforms, not financial records.

Option C [catalogue] refers to item listings, not ledgers.

Option D [supplier lists] relates to approved supplier databases.

By using GL data, procurement can ensure alignment with finance, strengthening compliance, budgeting, and strategic sourcing decisions.

[Ref: CIPS L5M6 Study Guide, p.135 – Use of General Ledger in procurement analysis]

In category management, forecasting is a critical tool for anticipating future requirements and managing supply markets. The three types of recognised forecasting are: demand forecasting (predicting organisational needs), supply forecasting (assessing availability and supplier capabilities), and price forecasting (estimating future price movements based on trends and market conditions). “Quantity forecasting” is not recognised as a distinct type, because quantity requirements are inherently part of demand forecasting. By separating demand, supply, and price forecasts, procurement professionals gain a holistic view of market conditions, ensuring they can secure the right goods at the right time and price. Effective forecasting also reduces risk by ensuring that category strategies account for volatility, seasonality, and inflation. Organisations that fail to forecast accurately may face supply shortages, overstocking, or missed opportunities for cost savings.

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.

Kaizen translates to “continuous improvement” in Japanese. It is a philosophy that encourages making small, incremental changes that collectively lead to significant performance enhancements over time. Within procurement and category management, Kaizen focuses on ongoing collaboration with suppliers to identify ways to reduce waste, improve quality, and optimise processes. Unlike one-off cost-reduction initiatives, Kaizen is embedded in the organisational culture and requires engagement from all levels of the supply chain. For example, small adjustments in packaging design might reduce material use, leading to cost savings and environmental benefits. This approach fosters long-term supplier partnerships and supports innovation. In competitive markets, organisations that adopt Kaizen are more resilient and adaptable, making it a key concept for category managers to understand.

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]

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.

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 correct answer is ignoring stakeholders’ feelings may result in rework or a poor result. In category management, implementing change—whether new sourcing strategies, supplier consolidation, or digital tools—affects multiple stakeholders. People often resist change, either passively or actively. CIPS highlights a model where typically 20% embrace change, 60% accept it cautiously, and 20% actively oppose it.

If stakeholders’ concerns are ignored, resistance can derail projects, leading to delays, poor adoption, or the need for costly rework. For example, if end-users are not engaged in developing specifications, the final product may not meet needs, requiring adjustments later.

Options A and B overstate the issue; not everyone resists change, but enough stakeholders may to cause disruption. Option D is incorrect because change can also bring risks and negative consequences if poorly managed.

Effective change management in procurement requires communication, stakeholder engagement, and addressing emotional as well as technical challenges.

[Ref: CIPS L5M6 Study Guide, p.68 – Managing the human side of change]