This paper introduces the concept of Digital Factory (DF) that can be used for representing the technological capabilities of manufacturing facilities. The DF, as the digital twin of physical facilities, replicates the facility in terms of installed machinery, material handling equipment, and layout. DF is supported by a formal ontology that describes the capabilities of the factory in a formal and machine-understandable fashion and enables capability quantification and visualization. Through exploring and querying the Digital Factories, companies can develop a deeper and more precise understanding of the technological capabilities of prospective suppliers, thus making more informed decisions when building supply chain partnerships. By creating their digital twins, small to medium-sized manufacturers can significantly improve their visibility in the virtual space. Digital Factories also enable automated supply chain formation. DF is introduced and discussed from a conceptual perspective in this paper. Also, a mathematical model for quantifying the processing capabilities of Digital Factories is introduced.