Exterior steel Door is too narrow

You'll be fine

You're talking about increasing the reveal 1/16" per side. Unless this door is on a submarine, aircraft or space shuttle, you'll be just fine

You throw or shim the hinges a teeny bit.

It'll work. Believe me. I've put in literally thousands of doors

1/8" is not a big deal. Certainly not enough to warrant rippling long strip to laminate to your door, and then mortising new hinge pockets.

Place the new door in the frame. If it works correctly, go on with life. If there is some issue, which will undoubtedly be minor, you can shim the hinges.

This is typically done with narrow strips of cardboard. To decrease the reveal on the strike side, place this shim under the hinge leaf as close to the hinge barrel as possible