In this article, an activity-based modeling and simulation approach to functional product development (FPD) is suggested as part of a simulation-driven CWE approach to meet the new demands that are placed on tools and methods used in industrial product development due to companies' transformation from hardware providers to function providers. The rationale for a simulation approach is discussed as well as the usefulness when applied on a process of work. An iterative data gathering and analysis process based on interviews and field notes is presented challenges for distributed working environment practices posed by the introduction of functional product development have been identified. They include four different and interrelated issues pertaining to approach, methods and tools, tolerances for errors and the ability to distribute new tools with extensive demands on usability and interoperability