In recent years many baby-boomer experts are retiring from manufacturing plants, raising concerns for the retention and transfer of production skills and knowledge. This paper approaches the problem of knowledge disruption at the production system from the viewpoint of situated cognition, especially of distributed cognition and distributed intelligence, which are based on activity theory. We examine cases of knowledge disruption at a manufacturing plant, and argue that the knowledge disruption takes place when some skills are "backgrounded" due to the transformation of activity knowledge in the development process of the plant.