Dual sourcing of a newsvendor with exponential utility of profit

In this paper we analyse dual sourcing strategies using an extended single-product newsvendor model with two order points. Different risk preferences will be modelled using an exponential utility function. Within realistic parameter ranges, the optimal order quantities can only be numerically computed. The findings of this paper show that dual sourcing strategies are always preferable to an exclusive offshore approach, as long as the onshore ordering costs are smaller than the selling price of the considered product. The more risk-averse the decision-maker, the smaller the offshore order quantity will be.