As large corporations outsource parts of their manufacturing and services, many small and medium-sized enterprise (SME) suppliers are expected to deepen their capabilities and take on the role of system suppliers. The purpose of this paper is to analyse how knowledge integration with customers may help a SME develop system supplier capabilities. The study is based on a deep longitudinal case study of a SME manufacturer and focuses on continuous development capability as one of the core system supplier capabilities. The results show that knowledge integration (KI) with customers is an effective means to build system capability but that this is a stepwise process. The study identifies three levels of KI with customers: unidirectional knowledge transfer, mutual knowledge exchange and full-range knowledge integration. The analysis further indicates that each level of KI requires specific supplier capabilities.