Work out dual sourcing cost premium instantly with clear inputs, formula shown and shareable results.
Dual sourcing costs the price difference on the volume allocated to the second supplier. That premium is effectively an insurance policy, so compare it with the revenue at risk from a single-source failure rather than treating it as pure cost.
Dual-source cost
Cost = Primary price x Volume x (1 - Secondary share) + Secondary price x Volume x Secondary share
Premium
Premium = Dual-source cost - Single-source cost
Enough to keep the supplier qualified and capable of scaling — typically 20-30%. Below 10% the second source cannot ramp when needed.
Compare the annual premium with the probability-weighted revenue at risk. For critical components it is almost always worth it; for commodities rarely.