This paper identifies the need for a technique which can assess whether a functional or n group cell system of production is most appropriate in a specific case as well as develop the appropriate system. The paper describes the technique of numerical taxonomy and shows how it may be applied to both group technology and plant layout. A computer programme for production flow analysis is presented. The component-machine matrix method of production flow analysis, as presented by Burbridge, is shown to be of limited value in practical cases and an improved method is proposed. The use of numerical taxonomy in developing functional-type layout is also described.