Are manufacturers ready for sweeping supply chain and trade policy changes? What about strengthening their data foundation? Will companies leverage their internal data to inform where they place strategic bets?
BDO’s 2025 manufacturing industry predictions delve into these questions and more to help industry executives navigate key trends we forecast ahead. Whether manufacturers are planning to invest in better data infrastructure, address workforce gaps, or prepare for policy changes under a new presidential administration, they will need to know the challenges — and opportunities — that are going to reshape the industry.
1. The Industry Will Pivot to Growth Mode
In the years since the COVID-19 pandemic, the manufacturing industry has been in triage mode, often focused on enhancing resiliency. Focus will change in 2025 as more organizations pivot back to strategy creation and expand growth opportunities.
Manufacturers will look to return to classic strategic planning processes, doubling down on attractive markets, driving a disciplined approach to execution, and formalizing feedback loops to understand when strategic shifts are necessary. Linking innovation roadmaps to validated diversification opportunities will reinforce the need to integrate across multiple functional areas.
To support scalability, manufacturers continue to simplify their business operations, as they explore modifying supply chain strategy or investing in new technology. One strategy that manufacturers are implementing to simplify operations is SKU rationalization. SKU rationalization can help organizations with excess inventory or low-performing SKUs analyze and streamline their SKU mix, providing opportunities to invest in the SKUs that can drive profitability. To help inform the rationalization decisions that will power strategic growth objectives, manufacturers will need demand insights. Getting those insights will rely on leveraging AI and predictive analytics to analyze historical data and market trends, which help uncover key patterns.
As manufacturers look ahead to place forward-thinking bets, finding ways to streamline business operations should enable them to free up resources to invest in new technologies to support strategic growth.
2. Manufacturers Will Move Up the AI Maturity Spectrum
In 2024, many manufacturers were figuring out where they land on the innovation adoption curve as it relates to artificial intelligence (AI). While some became early adopters — those who began experimenting with AI quickly — others ended up as the early majority — those who were willing to adopt after seeing evidence of its benefits. Some manufacturers still have yet to adopt AI as they closely observe and learn lessons from their peers.
But no matter where they fall on the adoption curve, we anticipate 2025 will be the year that manufacturers advance their AI maturity. The industry will see a variety of AI use cases proliferate. Beyond streamlining routine tasks, some manufacturers — especially those who were early adopters or early majority — will use AI in more sophisticated ways.
For instance, they may use AI to accelerate product development, including prototyping, machine-learning-informed engineering processes, and models that can simulate product performance and design. AI can also help manufacturers analyze market trends and understand their customers for demand forecasting and horizon planning. Automating these tasks will enable manufacturers to move ideas into development much faster.
Other manufacturers may use AI to enhance the employee experience. For example, AI can translate instructions into multiple languages in real-time. In doing so, manufacturers can teach new skills and programs to their workforce, despite language barriers, enabling more efficient upskilling across the enterprise.
3. Strong Data Infrastructure Will Prove Advantageous to Manufacturers
Building and maintaining a strong data infrastructure remains critical to the manufacturing industry, especially those that have adopted or are in the process of adopting AI. However, many manufacturers continue to face challenges working with a dozen or more disparate systems that have unique and asynchronous data inventories, resulting in weaker data foundations.
However, manufacturers cannot delay addressing these issues any longer as setting a strong data foundation is critical for operational success. That is because, in 2025, we expect manufacturers with greater data maturity will not only expand their AI use cases but also take a more data-driven approach to all operations to gain a competitive advantage. Some manufacturers, for example, will analyze plant floor data to optimize production practices and help cut costs. Others may leverage data to bolster their employee retention efforts, identifying turnover trends and understanding how employee churn impacts output quality from their warehouses. Manufacturers cannot afford to wait to establish a strong data foundation as their level of data maturity will dictate the success of these use cases and greater operations.
Manufacturers that invest more in their data infrastructure now will ultimately be able to make more informed decisions that can advance their growth strategies, mitigate risk, and outpace competitors.
4. Trade Policy Likely to Change, Manufacturers Will Look to Offset Tariff Impacts
Under the new administration, tariffs may rise by 10% on imports from all countries, with a 25% increase on imports from Canada and Mexico. President-Elect Trump has proposed an additional 60% tariff on Chinese goods, atop existing tariffs from 2018 under Section 301 of the Trade Act of 1974. While awaiting potential changes to trade policy, manufacturers should start planning now.
In 2025, manufacturers may increase nearshoring efforts and seek new sources to reduce dependence on China, as changes in determining the country of origin for Chinese goods are being discussed. Traditionally, the "substantial transformation" rule has been used for country-of-origin decision making, meaning final processing in the country of export has to result in a change in name, character, and use of raw materials for that location to be the country of origin. New proposals suggest determining the country of origin based on the country that owns the factory producing those imports. This change could affect offshoring and nearshoring plans.
Some manufacturers are expediting orders and stockpiling to control their supply chain, a trend likely to continue in 2025. Others will look to offset tariff costs by cutting spending in areas like fuel or logistics.
Manufacturers may also engage in product re-engineering to try and avoid tariffs altogether, by changing a product's design or components to qualify for a lower tariff rate under a different Harmonized System (HS) code. However, this only applies to certain tariffs, like Section 301 China tariffs. Other tariffs, such as the 25% duties on Canadian and Mexican goods, depend on the country of export. A broader strategy should be considered that involves lowering customs values, but transfer pricing rules for income tax must be taken into account to avoid double taxation for related parties.
As manufacturers navigate potential tariff increases, they may explore a mix of these tactics to mitigate costs. Yet, they will have to increase the time spent on research and development (R&D) and determine how these services and any intangibles affect the transfer price and customs value. Finally, manufacturers must map the entire supply chain of any new materials or finished goods they are sourcing — and verify that they are acceptable according to labor, safety, and environmental compliance mandates.
5. Rethinking Labor Sourcing Strategies Will Be Non-Negotiable
Manufacturers face a two-fold labor challenge. On the one hand, the industry is encountering an aging workforce, with many manufacturing employees retiring. Simultaneously, as job duties become technically advanced, manufacturers need to fill skill gaps within the talent pipeline, which can be difficult. Both issues will be critical for manufacturers to navigate in 2025.
There are several methods manufacturers will consider to address the increasing workforce gap. For example, attracting more women to manufacturing jobs is a key play. There is increasing opportunity for manufacturers to collaborate with educational institutions and policymakers, as well as offer training and education programs targeted toward women, to grow their talent pool. In addition, manufacturing faces a lack of available talent for the plant floor due to the “Great Retirement” wave. When legacy employees depart, there is a need to backfill roles quickly to meet demand. To help, companies may consider bringing back recent retirees on a part-time basis to keep important institutional knowledge intact in the short term.
Another critical tactic manufacturers will deploy is hiring more employees with science, technology, engineering, and mathematics (STEM) skills. Going forward, we expect manufacturers to place a high value on hiring technical specialists across the enterprise because they need employees who bring advanced technological, AI, and data analytics expertise. However, attracting STEM talent can be difficult. Despite the STEM workforce only growing by 20% between 2011 and 2021, modern manufacturing companies still face a gap: the need for STEM workers has accelerated at a faster pace than manufacturers are able to identify and hire the appropriate talent. To remedy this effectively, manufacturers will need to increase local educational and technical training programs and partner with universities to enhance recruiting efforts.
Preparing for the Future
Looking ahead, manufacturing executives should embrace transformative strategies that will shape the industry's future. From fortifying their data infrastructure and leveraging AI to streamline operations, to preparing for trade policy shifts, 2025 presents opportunities to redefine business growth. By addressing these trends now, manufacturers can better position themselves for success in 2025 and beyond.
Need help navigating the road ahead?
Contact a BDO professional today.