A methodology is proposed to form the GT cell considering the material flow in GT cellular manufacturing systems. The problem of GT cell formation is described by representing a graph using the quantities to be produced in the specified time period and the process route for producing the products. The objective of this paper is to minimize the total number of parts producing more than one cell. The problem formulated as a Quadratic Assignment Problem (QAP) is solved using both Lagrangean relaxation techniques and the optimality conditions of quadratic programming. Further-more, in order to obtain the global optimal solution rather than the local optimal solution, the branch-and-bound algorithm is employed. Finally, numerical examples are demonstrated to show the effectiveness of the solution techniques and the GT cell formation procedure, and also, the results from the computer simulation of measures of effectiveness of GT cellular manufacturing systems are presented.