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3 months ago in Supply Chain Management By Kumar

If a layer in a supply chain makes zero profit, does that collapse the chain?

I'm modeling supply chain resilience for my dissertation and came across a case where a critical supplier was barely breaking even. Traditional thinking says they'd exit, but they didn't. It made me reconsider the assumption that zero profit equals unsustainability. Under what conditions can a node survive financially while contributing zero margin, and when does it truly threaten the chain's viability?

All Answers (2 Answers In All)

By Hema Answered 1 month ago

No mathematically, it does not. Setting a layer's profit to zero is just a parameter change; the layer still exists, with all its variables, constraints, and operational dynamics. A true two-layer chain requires removing the entire tier eliminating its decisions, costs, inventories, and interactions. You must reformulate the profit functions and flows between the remaining layers. Zero profit ≠ absence. The structure remains; only one number changes. To reduce the chain, you have to rewrite the model.

By Vladimir Answered 1 month ago

 I have seen many nodes operate at zero profit without immediate collapse. It often happens in captive relationships a subsidiary or a supplier locked into a long-term contract with a parent company that absorbs their fixed costs elsewhere. The entity itself shows zero profit, but it's sustained as a strategic cost center rather than a profit center. However, I would recommend caution: if that node is an independent firm with no such backing, prolonged zero profit erodes working capital and investment capacity. The chain doesn't collapse overnight, but it begins to fray quality drops, lead times stretch, and eventually that weak link fails under the first real stress test. So the real question is not profit alone, but the node's strategic position and access to capital buffers.

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