The thesis presents an approach to adaptive decision making strategies to reduce bottlenecks in a drilling operation and to extend tool life. It is an attempt to portray the real drilling system in a typical Flexible Manufacturing System (FMS) layout. The system designed serves as back end intelligence to drilling machines (INTELLIDRILL) in a Flexible Manufacturing System for making dynamic and real time decisions. INTELLIDRILL uses mathematical and adaptive tool reliability models to simulate the machining conditions and tool availability for an operation based on history of tool failures. The results are used to compute the machining parameters and the tools required for an operation. INTELLIDRILL can devise strategies for different tool materials to operate on batches of different materials. INTELLIDRILL decisions could lead to significant savings in tooling costs and reduction in flow line bottlenecks.