A study of possibilities given by the developed Cellular Automata–Finite Element (CAFE) multi-scale model for prediction of the initiation and propagation of micro-shear bands and shear bands in metallic materials subjected to plastic deformation is described in the paper. Particular emphasis in defining the criterion for initiation of micro-shear and shear bands, as well as in defining the transition rules for the cellular automata, is put on accounting for the physical aspects of those phenomena occurring in two different scales in the material. The proposed approach led to the creation of the real multi-scale model of strain localization. This model predicts material behavior in various thermo-mechanical processes. Selected examples of applications of the developed model to simulations of metal forming processes, which involve strain localization, are presented in the paper. An approach based on the Smoothed Particle Hydrodynamic, which allows to overcome difficulties with remeshing in the traditional CAFE method, is presented in the paper as well. In this approach remeshing becomes possible and mesh distortion, which limits application of the CAFE method to simple deformation processes, is eliminated.