Dual Source Split Award Cost and Risk Calculator
A second source costs money before it saves any: a price premium, qualification work and a smaller volume for your best supplier. This calculator weighs those costs against the expected loss of a disruption.
Your numbers
First article, tooling transfer, audits and engineering time.
Chance per year that the primary supplier cannot ship for a material period.
Line stoppage, expediting, lost sales and penalties.
How many times its normal share it can ramp to in a disruption.
Your results
Expected value ignores rare, severe events and strategic value. A negative result does not by itself argue for single sourcing on critical parts.
Premium, benefit and net vs volume share to second supplier
Sweeps Volume awarded to the second supplier from 0 to 50, holding your other inputs fixed.
Supplier concentration review from ERP data
Optional: we can map single-source parts and supplier concentration from your purchasing data.
Optional. The tool and every export work without this. No spam.
How to use it
Enter the annual volume, both unit prices and the share you plan to give the second supplier. Add the one-time qualification cost and the years over which to spread it. Then estimate the annual probability of a serious disruption at the primary supplier, and the cost if you cannot ship. The surge multiple states how far the second supplier can ramp above its normal share. The chart sweeps the award share to find where net benefit peaks.
The method
Premium is the blended price over the primary price, times volume. Covered volume is the second share times the surge multiple, capped at 100 percent. Expected loss avoided is the disruption probability times the cost times covered volume. Net benefit is loss avoided minus premium minus annualized qualification cost. With the defaults, a 20 percent share and a 3x surge covers 60 percent of a disruption, which is worth about 19,200 a year against a cost of roughly 18,000.
- Blended price = weighted average of both suppliers
- Covered = min(100, share x surge)
- Benefit = probability x cost x covered
- Net = benefit - premium - qualification
Reading the result
The break between premium and benefit usually sits at a modest share, because a small active share is enough to keep a qualified source warm. If net benefit stays negative across the sweep, check whether your disruption cost is realistic; a stoppage on a sole-source part feeding a high-value assembly often costs more than buyers assume. Also consider geography: a second source in a different region lowers correlated risk.
Common mistakes
A frequent error is counting the second supplier as full backup without confirming it can really ramp. Test surge capacity with a trial order. Another is ignoring the lost volume discount at the primary supplier when you move a share away. Add that effect by lowering the primary price assumption. In ERP, source lists and quota arrangements implement the split; keep the quota percentages aligned with the share you modeled here.
Frequently Asked Questions
How do I estimate disruption probability?
Start from supplier history, financial health, region and capacity concentration. Even a rough range, such as 3 to 15 percent for a fragile supplier, is better than ignoring the risk. Run the sweep at both ends.
Is expected value enough?
It is a starting point. Rare severe events, such as losing a safety-critical part, may justify dual sourcing even when expected value is slightly negative. Treat the number as one input to the decision.
What share should the second supplier get?
Enough to keep them qualified, productive and able to ramp, commonly 10 to 30 percent. Too small a share leaves them uninterested; too large erodes the primary supplier's scale price.
Does this fit regulated parts?
Qualification costs are higher for regulated or customer-approved parts, and approval from the end customer may be needed. Enter the full cost in the qualification field.
If you want source lists, quota arrangements and supplier delivery performance reviewed against this kind of risk model, Netray can help analyze your ERP data.
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