Facility layout and flexible automation are two approaches for reduction of material handling costs and product travel distances that have always been implemented independently of each other. This paper describes an integrated approach to design of compact manufacturing facilities by using facility layout planning techniques to drive design and selection of multi-function machining centers. First, we decompose a facility into a network of layout modules to reduce product travel distances and simplify material flow control. Then, subject to design feasibility, we replace sets of machines in each module by multi-function machining centers and link these centers into Flexible Manufacturing Modules (FMM). A pattern recognition method for implementation of this approach for facility compaction is introduced in this paper.