Some modem manufacturing systems have workstations directly integrated with a centralized storage and handling system for work-in-process. We consider a Direct-Input-Output manufacturing system(DIOMS) which has a number of machine centers placed along a built-in automated storage/retrieval system(AS/RS). The storage/retrieval(S/R) machine handles parts placed on pallets for the machine centers located at either one or both sides of the AS/RS. This paper investigates the operational aspect of DIOMS by the Taguchi method. Four operating policies including input sequencing control. dispatching rule for the S/R machine, machine center-based part type selection rule, and storage assignment policy are treated as design factors. For the performance characteristics, mean flow time and throughput are adopted. The number of machine centers, the number of part types, demand rate, processing time and the rate of each part type. vertical and horizontal speed of the S/R machine, and the size of a local buffer in the machine centers am considered as noise factors in generating various DIOMS environments. A robust design experiment with inner and outer orthogonal arrays are conducted by computer simulation, and an optimal configuration of operating policies is presented which consists of a combination of the level of each design factor. The validity of the optimal configuration is investigated by comparing its SN ratios with those obtained by an experiment with full factorial designs.