In this paper we study the generalized grouping problem of cellular manufacturing. We propose an operation-sequence-based method for forming flow-line manufacturing cells. Process planning in the form of selection of the machine for each operation is included in the problem formulation. Input requirements include the set of operation requirements for each part type, and operation capabilities for all available machine types. The objective is to find the minimum-cost set of flow-line cells that is capable of producing the desired part mix. A similarity coefficient based on the longest common operation subsequence between part types is defined and used to group parts into independent, flow-line families. An algorithm is developed for finding a composite operation supersequence for each family. Given machine options for each operation in this sequence, the optimal machine sequence and capacity for each cell is then found by solving a shortest path problem on an augmented graph. The method is shown to be efficient and computational results are reported.