This article presents a network flow analysis to form flexible machine cells with minimum intercellular part moves and a neural network model to form part families. The operational sequences and production quantity of the part, and the number of cells and the cell size are taken into considerations for a 0-1 quadratic programming formulation and a network flow based solution procedure is developed. After designing the machine cells, a neural network approach for the integration of part families and the automatic assignment of new parts to the existing cells is proposed. A multi-layer backpropagation network with one hidden layer is used. Experimental results with varying number of neurons in hidden layer to evaluate the role of hidden neurons in the network learning performance are also presented. The comprehensive methodology developed in this article is appropriate for solving large-scale industrial applications without building the knowledge-based expert rule for the cellular manufacturing environment.