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Smart manufacturing is the modern form of manufacturing that utilises Industry 4.0 enablers for decision making and resources planning by taking advantage of the available data. Therefore, the state of the art technologies are either replaced or improved using the newly introduced manufacturing paradigm. In practice, condition monitoring is an on-going activity that preserves the manufacturing facility capability to deliver its production aims and decrease the production discontinuity as much as possible. Against this background, this paper discusses the state of the art condition monitoring and proposes a framework of fault detection and decision making at different levels namely component and station. The introduced framework relies on Virtual Engineering (VE) and Discrete Event Simulation (DES) in smart manufacturing environments. The application of the suggested methodology and its implementation is demonstrated in a case study of a battery module assembly line. [ABSTRACT FROM AUTHOR]