An automated Guided Vehicle (AGV) System with a limited number of vehicles cannot perform all of the transportation requests on demand. When a capacitated AGV system is used, then it is possible for the material handling system to become the bottleneck. There are many factors that affect the efficiency of an AGV system including how vehicles are routed and schedules. This paper presents a new dynamic approach to AGV routing. Simulation is used to study the effectiveness of this approach.