Today's competitive manufacturing environment has forced manufacturers to focus their attention on production by lots with emphasis on flexibility. Group technology provides us such a tool to improve quality, enhance flexibility, and increase productivity. Cellular manufacturing is one of the major applications of group technology. In recent years, cellular manufacturing has received considerable attention from practitioners and academicians. Cellular manufacturing allows small batch production to gain economic advantages similar to mass production while retaining the flexibility of job-shop production.;This study develops a methodology which can be used to form manufacturing cells using both a new similarity coefficient based on the number of alternative routes during machine failure, and demand changes. The methodology is divided into two phases. A new similarity coefficient, which considers the number of available alternative routes during machine failure, is suggested in Phase I. The primary objective of Phase I is to identify part families based on the new similarity coefficient. A new methodology for cell formation, which considers the scheduling and operational aspects of cell design under demand changes, is introduced in Phase II. Machines are assigned to part families by using an optimization technique. This optimization technique employs sequential and simultaneous mixed-integer programming models for a given period to minimize the total costs which are related to the scheduling and operational aspects.
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