Group technology (GT) and a facility layout problem share a common factor to optimize, which is the “Intercell Flow or Material Handling Flow”. Most group technology-based approaches use binary part-machine incidence matrix for cell formation. Impacts of flow volume analysis between machine pairs have not been analyzed in the design of cellular manufacturing systems. It is important to analyze the placement of machine cells for reduced material handling costs at the grouping stage itself. This paper develops a method to integrate GT philosophy with a facility layout problem using “From–Between” relationship chart as a tool. A new optimization technique with a “from–to chart” as the primary input, is used to determine the cell formation. A modified grouping efficiency measure is used to determine the efficiency of grouping. A genetic algorithm-based approach is used for machine cell placement within a layout matrix. Cells formed using the proposed approach show reduced intercell flows, high grouping efficiencies and reduced material handling costs when cells are placed in a layout grid compared to existing cell formation approaches.