This paper presents a similarity coefficient based approach to the problem of machine-component grouping. The proposed method incorporates relevant production data such as part type production volume, routing sequence and unit operation time in the early stages of grouping decisions for cellular manufacturing. The algorithm also suggests a methodology for evaluating alternative solutions from different algorithms on a quantitative basis using a modified version of an existingcoefficient. The modifiedquantitative measure is a comprehensiveindicator for the goodness of a grouping solution. The algorithm then identifies bottleneck machines and corresponding cell candidates for their duplication using percentage utilization in each cell as a criterion. Finally, additional constraints can be applied to determine the best grouping solution among alternative solutions generated by the algorithm. Asoftwarepackage has beendeveloped to verify the implementation.