A comprehensive methodology for the design of hybrid-type production shops that comprise both manufacturing cells and individual workcenters is presented. It targets the minimization of the material handling effort within the shop and comprises four basic steps: (1) identification of candidate manufacturing cells, (2) evaluation and selection of the cells to be implemented, (3) determination of the intra-cell layout, and (4) determination of the shop layout. For the cell formation step the ICTMM technique has been enhanced to cater for important practical issues. The layout of each significant cell is determined by a simulated annealing (SA)-based algorithm. Once the sizes and shapes of the selected cells are known, the shop layout is determined by a similar algorithm. The resulting hybrid shop consists of the selected cells and the remaining machines. The methodology has been implemented in an integrated software system and has been applied to redesign the shop of a large manufacturer of radar antennas.