Important CIPS L5M6 Exam Questions

Answer: B

Explanation:

Goodwill is found under Non-current assets in a balance sheet. Goodwill arises when one company acquires another for a value greater than its tangible assets, reflecting intangible benefits such as brand reputation, customer loyalty, patents, or strong supplier relationships.

For example, if a company is valued at 10 million based on tangible assets but is purchased for 15 million, the 5 million difference is recorded as goodwill. This asset remains on the balance sheet until impaired [e.g., if the acquired brand loses value].

It is not a current asset because it cannot be quickly liquidated within one year. Nor is it a liability [current or non-current] since it represents value, not debt.

For procurement and category managers, goodwill can signal a supplier's market position, brand strength, and long-term stability. It highlights how intangible assets, though harder to measure, play a role in supplier evaluation and business acquisitions.

[Ref: CIPS L5M6 Study Guide, p.183 -- Financial terms and balance sheet analysis]

Answer: D

Explanation:

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]

Answer: D

Explanation:

The correct score is 25, which is the highest possible risk score on a 1--5 scale. This reflects a major risk with both severity [5] and likelihood [5] rated as high. The risk assessment methodology multiplies these two factors [5 5 = 25] to produce a risk rating.

This scoring system enables supply chain managers to rank risks and prioritise mitigation strategies. A risk scored at 25 requires urgent attention, such as developing contingency plans, dual sourcing, increasing safety stock, or renegotiating terms with suppliers.

Lower scores such as 1, 5, or 10 indicate lower overall risk exposure, but in this case, the combination of long geographical distance, reliance on a low-cost country supplier, and criticality of the order elevates the risk to the maximum score.

Risk assessment tools like this are central to category management because they support proactive risk mitigation rather than reactive crisis management.

[Ref: CIPS L5M6 Study Guide, p.56 -- Risk assessment scoring and protocols]

Answer: B

Explanation:

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]

Answer: C

Explanation:

The International Association for ContractCommercial Management [IACCM], now known as WorldCC, provides frameworks to help organisations select the most suitable sourcing and contracting models. For category managers, this is particularly valuable when deciding whether a transactional, relational, or investment-based model best fits the organisation's needs.

It does not directly choose suppliers or perform market analysis; rather, it guides decision-makers on the structural relationship with suppliers. For example, IACCM provides tools to decide whether to adopt outcome-based contracts, performance partnerships, or traditional transactional agreements.

Benchmarking may be a separate exercise, but sourcing models determine the governance and risk-sharing approach that underpins supplier relationships.

CIPS encourages procurement professionals to be familiar with IACCM's role, as it reinforces the need for strategic selection of sourcing models rather than a one-size-fits-all approach.

[Ref: CIPS L5M6 Study Guide, p.31 -- IACCM and sourcing model selection]