Flexibility of manufacturing systems and the diversity of parts that may be produced by these systems is of great importance to managers. The effects of both product diversity and the ability of machines to perform a variety of operations, defined here as flexibility, are investigated. As product diversity increases, the deterioration of system performance is measured. A unique approach is adopted. In order to eliminate the interaction between the factors in this study, optimally designed systems are compared. The methodology adopted is a combination of computer simulation, response surface methodology and the Hooke-Jeeves procedure. We conclude that more flexibility is not necessarily better than less flexibility, and that as product diversity increases, for a given system there is a level of flexibility that will optimize system performance and minimize the rate of its deterioration.