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With the adancing digital technology and information tools in networking the core of manufacturing activities has Shifted from the physical production of goods to the systematic processing of knowledge The competitiveness of tomorroww manufacturing enterprise lies in the operation of such digital factory in parallel with the physical one,This change in manufacturing in the digital age is taking place not only in Hong Kong but worldwide .This paper describes the development of establishing a digital factory laboratory in the Department of Industrial and Systems Engineering of The Hong Kong Polytching University.The Digital Facory is a focus for teaching,research and technology transfer in the area of digital manufacturing ,The paper also describes an application case of virtual manfacturing in which computer simulation models of a production line of an AC motor are developed for investigation.