Flexible manufacturing systems (FMS) comprise, automated machine tools, automated material handling, and automated storage and automated retrieval systems (AS/RS) as essential components. Effective sequencing and scheduling of the material handling systems (MHS) can have a major impact on the productivity of the manufacturing system. The material handling cannot be neglected while scheduling the production tasks. It is necessary to take into account the interaction between machines, material handling systems and computer. In this context, this paper attempts to link the operation of automated guided vehicles (AGV) with the production schedule and suggests a heuristic algorithm that employs vehicle dispatching rules (vdr) for conflict resolution. The vdrs considered in this paper are: shortest operation time (SPT), longest operation time (LPT), longest travel time (LTT) and shortest travel time (STT). The performance of the vdrs in the proposed heuristic is compared with makespan criteria. The results show that the STT provides the best solutions compared to other vdrs.