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.

Question

Sourcing Strategy

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

1) Long-term contracts

2) Spot purchasing

3) Short-term contracts