Due to innovations in sensor technology and rising complexity of manufacturing processes, increasingly more sensors are distributed throughout manufacturing and production systems to maintain the production performance, to ensure the life-cycle quality of products, and to improve the quality of management and service. This system-wide deployment of sensing devices is referred to as a distributed sensor system. Distributed sensor systems have resulted in a data-rich manufacturing environment and provide us unprecedented opportunities for quality and productivity improvement. In order to realize the full potential of a distributed sensor system, several fundamental research issues need to be addressed, including quantification of a sensor system, information estimation using multi-sensor measurements, and information system optimization. Under the context of a multi-station assembly process, this talk will discuss some recent work on a diagnosability analysis for sensor system evaluation (information quantification), in-process variation estimators (information estimation), and sensor distribution in a multi-station process (information system optimization).