Digital twin technology, a central component of Industry 4.0, has attracted growing attention for its potential to improve operational efficiency and sustainability in manufacturing. However, empirical evidence explaining how Digital Twin Adoption (DT) contributes to Circular Economy Practices (CE) through Lean Manufacturing Practices (LM) in small and medium-sized enterprises (SMEs) remains limited. This study examines the direct effect of DT on CE and the mediating role of LM in manufacturing SMEs.
Data were collected through a structured questionnaire distributed to managers of manufacturing SMEs. A total of 243 valid responses were analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM) to examine the relationships among DT, LM, and CE.
The results show that DT is positively associated with CE practices. DT also positively influences LM, which in turn significantly enhances CE. The mediation analysis further indicates that LM serves as an important operational mechanism through which DT contributes to CE outcomes, including resource efficiency, waste minimization, and closed-loop practices in SMEs.
Managers may improve both operational efficiency and CE by integrating DT initiatives with LM.
This study provides empirical evidence by integrating DT, LM, and CE within a single framework in the SME manufacturing context. The findings clarify the mediating role of LM in translating DT into CE, thereby contributing to research on Industry 4.0 and sustainable manufacturing.
