Consider an electrical equipment manufacturing company AMP that operates in the Indian home electrical equipment industry. AMP makes and sells the following two types of products:

Product A – Kitchen chimneys: These chimneys are in very high demand, especially in urban India and their demand does not fluctuate at any time of the year.

Product B – Exhaust fans: These fans have very high demand for six months in a year from the month of March up to August. For the remaining six months, the demand is very low and only comes from tropical states of the country.

AMP sources capacitors as raw material for both the product categories.

Qus. : Determine what kind of sourcing strategy is most optimal for AMP to follow for product A

below option

1. Long Term contract
2. Short term Contract
3. Spot purchase

Qus: Determine what kind of sourcing strategy is most optimal for AMP to follow for product B

1. Long Term contract
2. Short term Contract
3. Spot purchase

**Reasoning:** A long-term contract allows AMP to secure a stable supply of capacitors over an extended period. Since the demand for kitchen chimneys does not fluctuate seasonally, a long-term contract ensures continuity in supply without the risk of supply shortages or price volatility in the capacitor market.

### For Product B – Exhaust fans:

- **Demand Characteristics:**

- High demand for 6 months (March to August).

- Low demand for the remaining 6 months, with some demand from tropical states.

Considering the seasonal demand pattern for Product B (Exhaust fans), the most optimal sourcing strategy for AMP would be:

**Short Term Contract**

**Reasoning:** A short-term contract allows AMP to adjust its capacitor sourcing according to the seasonal demand fluctuations of exhaust fans. During the peak demand months (March to August), AMP can procure capacitors in larger quantities to meet the increased production needs. In contrast, during the low demand months, AMP can reduce or adjust its capacitor purchases accordingly, minimizing inventory holding costs and aligning with the actual production requirements.

### Summary:

1. **Product A (Kitchen chimneys):** Optimal sourcing strategy is **Long Term Contract** due to stable and consistent demand throughout the year.

2. **Product B (Exhaust fans):** Optimal sourcing strategy is **Short Term Contract** to align with the seasonal demand fluctuations from March to August.

These strategies will help AMP effectively manage its capacitor sourcing, ensuring reliable production and meeting customer demand efficiently for both product categories.