Identification of part-families and machine groups is an important step in the design of Cellular Manufacturing System (CMS). An attempt has been made to use Mahalanobis distance, a statistical measure used to classify observations into different groups, for the identification of the part families and machine groups that would result in optimal machinepart cell formation. The grouping efficiency and grouping efficacy measures show that the proposed method is simple and effective in the formation of machine-part cells. © EuroJournals Publishing, Inc. 2011.