Pass the CIPS Level 5 Advanced Diploma in Procurement and Supply L5M6 Questions and answers with ExamsMirror

The categories most likely to be outsourced are Marketing services and Facilities Management [FM]. These are examples of indirect spend categories where external providers often offer specialist expertise, cost efficiency, and scalability.

CIPS identifies five indirect categories frequently outsourced: Marketing, Facilities Management, IT/Communications, Human Resources, and MRO [Maintenance, Repairs, Operations]. Outsourcing these allows organisations to focus internal resources on core competencies such as manufacturing or R&D.

Raw materials, warehousing, and operations are typically core to production and therefore managed internally or strategically sourced, rather than fully outsourced. While warehousing may sometimes be outsourced [3PL], it is not listed among the primary categories in the study guide.

Outsourcing decisions must balance cost, risk, and strategic importance. For example, outsourcing FM reduces overheads while ensuring professional management of buildings and services, whereas marketing agencies provide creativity and campaign expertise.

[Ref: CIPS L5M6 Study Guide, pp.46–47 – Categories commonly outsourced]

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.

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]

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]

Reeves, Moose and Venema (2014) established that products move through the four quadrants of the BCG matrix more quickly in the modern business environment compared to the past. This is a reflection of faster innovation cycles, market saturation, and increased competition. The other three statements are the opposite of what their research proved.

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]

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 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.

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]

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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)