Survey: 98% of Manufacturers Face Material Pressures

The push for domestic production is intensifying, with U.S. manufacturers and foreign investors announcing 244,000 new jobs in 2024 related to reshoring and foreign direct investment (FDI). This continues a trend that has seen over 2.5 million such jobs announced since 2010. High-tech sectors are a primary driver, accounting for 88% of the jobs announced in 2024, particularly in computer and electronics, EV batteries, and solar equipment. The strategic pivot to North American production is heavily influenced by geopolitical risk and tariffs, which were cited 454% more often as a motivator in early 2025 compared to 2024. However, cost remains a significant factor, with 69% of Original Equipment Manufacturers (OEMs) still citing it as the main reason for offshoring. This creates a complex decision-making environment where the benefits of shorter lead times and proximity to engineering teams are weighed against higher domestic production costs. Regulatory pressures are also shaping supply chain strategies. The SEC's climate disclosure rules, phasing in for large public companies in fiscal year 2026, will require reporting of Scope 1 and Scope 2 greenhouse gas emissions. While the SEC dropped the requirement for Scope 3 (supply chain) emissions, similar rules in the EU and California mean manufacturers must still prepare for broader emissions reporting. New international regulations, such as the EU's Corporate Sustainability Due Diligence Directive (CSDDD), are compelling companies to identify and mitigate adverse human rights and environmental impacts throughout their supply chains. These regulations, along with others targeting forced labor and deforestation, necessitate more robust supplier auditing and traceability systems. This is shifting internal audit's role toward a more strategic partnership, focusing on supply chain resilience, third-party risk management, and providing assurance over emerging risks. Sourcing critical minerals remains a significant vulnerability, with the U.S. heavily reliant on foreign sources for materials essential for electric vehicles, renewable energy, and defense. China dominates the processing of key minerals like rare earth elements (over 90%), lithium (about 80%), and cobalt (60%). In response, the U.S. government has launched initiatives like "Project Vault," a $10 billion strategic mineral reserve to insulate domestic manufacturers from supply shocks. Ongoing trade tensions continue to impact the manufacturing landscape. The U.S.-China trade war has led to decreased foreign direct investment in both countries' manufacturing sectors and has elevated production costs. Recent tariff actions and threats of a 15% tariff on imported goods create further uncertainty for global supply chains, impacting everything from raw materials to finished automotive products. Workforce challenges present a significant obstacle to sustaining the reshoring momentum. Projections indicate a potential shortfall of 2.1 million manufacturing jobs by 2030, a figure that could grow if reshoring accelerates. This skilled labor shortage affects the entire value chain, from production to transportation, where an aging workforce and a lack of new entrants threaten to create bottlenecks. Internal audit functions are evolving to meet these multifaceted challenges. The focus is shifting from traditional compliance to providing assurance on enterprise risk management (ERM), including cybersecurity, supply chain resilience, and third-party risks. There is a growing trend toward using data analytics and continuous auditing to offer proactive insights on operational efficiency and risk mitigation, positioning internal audit as a more strategic advisor to leadership.