This paper presents an integer programming formulation for the manufacturing shop design problem, which integrates decisions concerning the layout of the resource groups on the shop floor with the design of the material handling system. The model reflects critical practical design concerns including the capacity of the flow network and of the transporters, and the tradeoff between fixed (construction and acquisition) and variable (operational) costs. For realistic industrial cases, the size of the problem prevents the solution through explicit or implicit enumeration schemes. The paper addresses this limitation by decomposing the global model into its natural components. The resulting submodels are shown to be standard problems of operations research. The decomposition approach provides ways to solve the integrated shop design problem in an effective manner.