CIPS L5M6 - Category Management

Break-even pricing is a method where a supplier sets a price to cover fixed and variable costs, ensuring they do not operate at a loss. However, this approach does not account for price elasticity (how sensitive demand is to price changes) or competitors’ pricing strategies. This can be a weakness because while break-even ensures financial sustainability, it may not ensure competitiveness or profitability in dynamic markets. For procurement professionals, understanding suppliers’ pricing models helps in negotiation and cost management. If a supplier relies only on break-even pricing, they may either set prices too low (risking financial instability) or too high (losing market share). Category managers must consider broader market forces, cost drivers, and customer behaviours to anticipate supplier pricing strategies. By understanding these limitations, buyers can push for more favourable terms and ensure that suppliers align with market expectations.

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.

The most effective approaches are:

Limiting dependence on one supplier [B]: CIPS suggests no more than 30% of spend should be concentrated with a single supplier. This reduces exposure if that supplier becomes insolvent or fails to deliver.

Having contingency plans [D]: Preparing alternative suppliers, safety stock, or emergency logistics ensures continuity in case of failure.

Options A and C are poor practices:

Using fewer suppliers [A]: Increases dependency, making the business more vulnerable.

Using small start-ups exclusively [C]: Increases risk because these firms often lack financial stability.

These strategies align with broader supply risk management principles, which focus on diversification, resilience, and proactive planning. Effective category managers must balance efficiency with risk reduction, ensuring supply continuity without over-consolidating.

[Ref: CIPS L5M6 Study Guide, p.57 – Supplier risk mitigation strategies]

In deciding the correct Sourcing Business Model, stakeholders must clarify two fundamental issues:

The most appropriate contractual relationship [C]: This could be transactional [short-term, cost-focused], relational [long-term collaboration], or investment-based [joint ventures, alliances]. The choice defines how risks and rewards are shared with suppliers.

The most appropriate economic model [D]: This determines the pricing and performance framework, e.g., transactional [pay-per-unit], output-based, or outcome-based [pay-for-results].

Options A and B are important but secondary considerations. Risk appetite and TCO factors are inputs to decision-making, but the contractual and economic models define the overall sourcing structure.

This reflects the study guide’s emphasis that sourcing models should be tailored to category complexity and business objectives. Using the wrong model can undermine supplier relationships and value delivery.

[Ref: CIPS L5M6 Study Guide, p.32 – Key questions in Sourcing Business Models]

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.

A Technology Roadmap is a planning tool used to align technological investments with business strategy. It enables organisations to evaluate current capabilities, identify emerging challenges, and plan for future technology adoption. The purpose is not just to decide between existing options but to forecast which innovations will be most valuable over time.

For instance, a company may use a roadmap to determine whether to invest in automation, artificial intelligence, or renewable energy solutions, based on expected business growth and industry trends. This ensures resources are allocated to technologies that offer long-term competitiveness.

Other options are less accurate:

Option A oversimplifies; technology roadmaps are not for one-off decisions.

Option B is incorrect as tenders require specifications, not long-term roadmaps.

Option D relates to risk management, not strategic technology planning.

Therefore, the roadmap helps businesses stay adaptive and forward-thinking, ensuring that investments made today remain relevant tomorrow.

[Ref: CIPS L5M6 Study Guide, pp.126–127 – Technology Roadmaps in category management]

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.