Cellular manufacturing has tested positive in significantly reducing material handling and setup time as compared to a job shop, but it falls behind job shop in terms of flexibility. In this thesis a new system is proposed that takes advantage of the flexibility of a job shop while it keeps the setup time at a reduced level. This new system is referred to as hybrid system.In this thesis the performance of the proposed hybrid system is compared to the conventional cellular manufacturing system. Both systems are evaluated within a cellular layout and utilize group sheduling rules DDSI (due date truncated shortest processing time) and MSSPT (minimum setup shortest processing time). A simulation model, with random due dates and quantities is developed and tested. Performance measures are mean flowtime, tardiness and earliness.Overall results indicate that, in terms of mean flowtime and tardiness, the hybrid system outperforms the cellular system when the MSSPT rule was applied, while the cellular system outperforms the hybrid system when the DDSI rule is implemented. With regard to the earliness performance measure, the cellular system shows in most cases better performance than the hybrid system, regardless of the scheduling rule used. Finally, the results indicate that the hybrid system performs better than the cellular system with respect to the number of parts produced.