In cellular manufacturing, machines are organized into compact and independ
ent product-based group technology (GT) cells. Production in smaller GT cel
ls not only reduces travel distances but also facilitates better material a
nd production control. Cell compactness and cell independence are two basic
requirements of efficient GT cells. Most cell formation procedures conside
r maximizing cell independence as the objective. In doing so, these procedu
res impose an upper limit on cell size as a threshold value for cell compac
tness. This paper views cell compactness and cell independence in terms of
intercell and intracell move costs. The trade-off between intracell and int
ercell move costs is explained in detail. A nonlinear mathematical model an
d simulated annealing algorithm are developed that minimize the total intra
cell and intercell move costs. In the calculation of move costs, production
quantity, effect of cell size on intracell move, effect of sequence of ope
rations, and multiple nonconsecutive visits to the same machine are conside
red. The results are compared with published results.