Digital Transformation and Cost Efficiency in Manufacturing Firms

yeboah, samuel (2026): Digital Transformation and Cost Efficiency in Manufacturing Firms.

Abstract

Digital transformation has become a critical strategic driver of cost efficiency and competitiveness in manufacturing firms. This literature review synthesises contemporary theoretical and empirical evidence on the relationship between digital transformation and cost efficiency in manufacturing contexts. Drawing on resource-based view, dynamic capabilities theory, and transaction cost economics, the study explains how digital technologies such as artificial intelligence, big data analytics, automation, and integrated digital platforms enhance operational efficiency and reduce production costs. The review identifies multiple transmission mechanisms, including improvements in production efficiency, supply chain coordination, labour productivity, innovation efficiency, and resource utilisation. Empirical evidence from diverse contexts consistently shows that digital transformation reduces operating costs, enhances total factor productivity, improves energy efficiency, and strengthens firm performance. However, the review also highlights significant variations in outcomes depending on organisational readiness, technological capability, and institutional environments. While most studies report positive efficiency effects, evidence remains fragmented across different efficiency dimensions and geographically concentrated in developed and Chinese manufacturing sectors, limiting broader generalisability. The study further identifies key implementation challenges, including infrastructural constraints, capability gaps, and organisational resistance, particularly in emerging economies. By integrating existing literature, this review develops a conceptual framework linking digital transformation to cost efficiency through multiple mediating mechanisms. The study concludes with policy implications and future research directions aimed at strengthening digital capability development and enhancing manufacturing competitiveness globally.

• Item Type: MPRA Paper
• Language: English
• Keywords: Manufacturing firms; Industry 4.0; Operational efficiency; Supply chain efficiency; Total factor productivity
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M15 - IT Management; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q55 - Technological Innovation

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