Internal Audit's Role in Supply Chain Evolves
Internal audit's role in supply chain is evolving from transactional compliance to strategic risk advisory. Experts note that leading functions are now expected to map complex supplier dependencies and stress-test contingency plans, framing supply chain vulnerabilities as a core strategic business risk.
The push for supply chain resilience is intensifying with about 69% of U.S. manufacturers actively reshoring their supply chains. This trend is fueled by a desire to mitigate geopolitical risks and improve supply security, with 244,000 reshoring and Foreign Direct Investment-related jobs announced in 2024 alone. This localization strategy aims to reduce exposure to global trade volatility and bring production closer to customers. Regulatory pressures are mounting from multiple agencies. The EPA has finalized new rules on PFAS, or "forever chemicals," requiring extensive reporting and recordkeeping for manufacturers who produce, use, or import them, with data required back to 2011. Additionally, in April 2024, the EPA designated two types of PFAS as "hazardous substances," which will have broad implications for manufacturers throughout the supply chain. The Securities and Exchange Commission's (SEC) new climate disclosure rules, adopted in March 2024, mandate that public companies report on climate-related risks that could materially impact their business, including those in their value chain. While Scope 3 (supply chain) emissions reporting is not broadly required, companies must disclose these risks if they are deemed to have a "significant impact" on financial performance. Heightened U.S.-China trade tensions are directly impacting manufacturing costs and sourcing strategies. In 2024, tariffs on certain Chinese goods were significantly increased, with rates on semiconductors set to rise from 25% to 50% by 2025 and electric vehicle tariffs jumping to 100%. These actions are designed to protect U.S. industries and decrease reliance on Chinese supply chains. Internal audit functions are increasingly turning to co-sourcing to gain access to specialized skills needed to address these complex risks. This collaborative model allows companies to blend their internal team's institutional knowledge with external expertise in areas like cybersecurity and ESG compliance. This provides the flexibility and scalability required to navigate the evolving risk landscape. To secure critical resources, U.S. policy is focused on reducing dependence on foreign mineral supply chains. The Department of Defense is developing a strategy to eliminate reliance on adversarial nations for critical minerals by 2035, prioritizing domestic production and partnerships with allied nations. As of 2024, the U.S. was entirely reliant on imports for 12 critical minerals. OSHA is increasing its scrutiny of the manufacturing sector with a budget increase of $107 million for fiscal year 2024, funding 432 new full-time employees. From October 2023 to September 2024, the manufacturing sector saw over 16,000 OSHA violations, leading to more than $70 million in penalties. The most frequently cited violations included issues with hazardous energy control (lockout/tagout), hazard communication, and respiratory protection.
