In spite of a long history of profound research on manufacturing systems, researchers have rarely explored the aspect of integrating the two key components of manufacturing systems: production system and material-handling system (MHS). Often they have focused on one component while ignoring the other. During the decision-making process both components must be considered in order to achieve overall improved productivity. Therefore, a generic theory, considering both key components, is proposed (Chapter 2) for defining and classifying the current state of the manufacturing system into a logistics constrained state (LCS), a transition state (TS), and a production constrained state (PCS). In Chapter 3 methodologies for identifying the current state of manufacturing systems as well as for identifying the transition from one state to another are proposed. The effect of number and load carrying capacity of the material handling units (MHUs) on the three proposed states is analyzed. In Chapter 4, the effect of variability in processing times on the three manufacturing system states is investigated. The MHS is an integral part of the manufacturing system, and the available related literature mainly concentrates on scheduling, routing, and determining the required number of MHUs. Rarely has any literature considered the failure of MHUs. Chapter 5 explores the impact of different failure patterns of MHUs, and their effect on the performance of a manufacturing system is investigated. A cost analysis is performed to identify the most cost-effective failure pattern and the required number of MHUs for the manufacturing system, assuming that, failure patterns are known in advance.