Supply Chain Risk Now a Strategic Issue
A podcast from the Institute of Internal Auditors argues that supply chain risk has evolved from a logistical issue into a strategic business risk. Experts on the podcast noted that common blind spots for companies include relying on historical dashboards and making localized risk decisions without understanding enterprise-wide implications. The new mandate for internal audit is to proactively challenge assumptions and identify interconnected risks across the organization.
- Geopolitical tensions are actively reshaping manufacturing supply chains, with many multinational corporations adopting "China+1" strategies to diversify production to countries like Vietnam, India, and Mexico. This shift is driven by new U.S. tariffs on Chinese goods and China's own retaliatory measures, including restrictions on rare earth exports. - A growing trend for U.S. companies is reshoring, the process of bringing manufacturing back to the United States, and nearshoring, which involves moving operations to nearby countries like Mexico or Canada to shorten lead times and reduce transportation costs. Factors driving this include geopolitical uncertainty and rising labor and transportation costs in traditional offshore locations. - The Securities and Exchange Commission (SEC) adopted new regulations in March 2024 requiring public companies to disclose climate-related risks to their business, including material risks within their value chain. While the final rule does not mandate the disclosure of Scope 3 (supply chain) emissions, companies must still report on supply chain risks if they are likely to have a material impact on their business or financial condition. - The Environmental Protection Agency (EPA) is increasing its focus on "forever chemicals" (PFAS), with potential classification as hazardous substances under CERCLA in 2025. This will create new testing, reporting, and treatment requirements for manufacturers who use industrial chemicals, coatings, or firefighting foams. - The Occupational Safety and Health Administration (OSHA) is implementing changes in 2025 that include a mandate for properly fitting personal protective equipment (PPE) for all employees and enhanced requirements for the electronic submission of injury and illness data. Increased penalties and more frequent inspections are also anticipated in high-risk industries like manufacturing. - Internal audit functions are being called upon to provide greater assurance over supply chain resilience, including verifying the accuracy of supply chain maps and assessing the effectiveness of risk mitigation plans. However, a 2023 survey revealed that 30% of internal audit departments are not involved with supply chain risks in any capacity. - Advanced technologies are playing a crucial role in mitigating supply chain risks, with a focus on artificial intelligence (AI) and machine learning to optimize production and predict maintenance needs. The adoption of digital tools for real-time visibility and supply chain analytics is a key strategy for enhancing resilience. - Labor shortages and skills gaps continue to be a significant challenge for the manufacturing industry, impacting everything from production to transportation and warehousing. The trend of reshoring has intensified these workforce challenges, creating an urgent need for workforce development programs and technologies that increase worker productivity.
