A key issue in the design of a cellular manufacturing system is the fo
rmation of the machines and parts into groups or production cells. The
production cells are designed to minimize the costs of inter-cell par
t movements and intra-cell processing, while balancing the workload wi
thin each cell. Most of the prior research represents the cell formati
on problem as a binary machine-part incidence matrix. The workload bal
ance within each production cen can be precisely calculated only if th
e processing times and demand rates are included in the analysis. For
this reason, a heuristic-based procedure that uses processing times an
d demand rates to form the production cells is proposed. The procedure
considers the cell imbalance costs as well as the costs associated wi
th the inter-cell part movements and intra-cell processing. The effici
ency and effectiveness of the heuristic is compared with other methods
, and an industrial application of the proposed heuristic is presented
.