In this study, fuzzy set theory (FST) is used to set out the cell layout. A new algorithm which will consider both design and manufacturing attributes and operation sequences as factors, is proposed to formulate the problem. The structure of the algorithm is based on fuzzy decision making system (FDMS). Hence three factors mentioned above are determined as input variables and fuzzified using membership function concept. Then the pairwise comparison of the analytical hierarchy process (AHP), which ensures the consistency of the designer's decisions when assigning the importance of one factor over another, is used to find the weights of these factors. Applying IF-THEN decision rules, parts relationship chart (PRC) is generated. After these steps, the traditional cell formation procedure is applied. Finally the proposed method is scored by performance measures such as machine investment, the amount of work load deviations within cell and between cells and the number of skippings. Also the comparison with Akturk's study (International Journal of Production Research 34 (8) (1996) 2299-2315) in respect to these performance measures is presented. (C) 2000 Elsevier Science B.V. All rights reserved.