Automated Guided Vehicles(AGVs) are widely used in computer integrated manufacturing(CIM) systems for material handling purposes. Although automated guided vehicles provide higher levels of flexibility and computer integrability, the installations are limited in number and one of the critical reasons lies in the complexity involved in the operation. The main objective of this research is to alleviate this problem by proposing efficient integrated operational control methods for AGV-based CIM systems. Particularly, this research is concerned with the mixed problem of dispatching automated guided vehicles and scheduling machines operation. The proposed dynamic heuristic algorithm uses various priority schemes and relevant information concerning the load of the system, the status of queues, and the position of AGVs in the scheduling process. The scheduling decision process is hierarchical in the sense that different decision criteria are applied sequentially to identify the most appropriate part to be served. This algorithm consists of two sections, the section of part selection by AGVs for the next service whenever an AGV completes the current assignment, and the section of part selection by machines for next service whenever a machine completes the current operation. The proposed algorithm has been compared with other scheduling schemes using the performance measure of mean flow-time and mean tardiness. Simulation results indicate that the proposed algorithm can reduce the mean flow-time and mean tardiness significantly.