The success of cell manufacturing applications in FMS rests on the effective cell formation to maintain the independent relations both between machine cells and between part families. This paper presents an integrated method for concurrent formation of cells and families with no E.E (Exceptional Element) in FMS with alternative routings. To determine the maximum number of cell and family with no E.E, mathematical conditions and properties are derived. New concept of nonsimilarity is introduced for each machine and part based on machine-operation incidence matrix and part-operation incidence matrix. To concurrently form the cells and families, integer programming based mathematical models are developed. For the predetermined number of cell or family, model I is used to identify whether E.E exists or not. Model II forms cells and families considering only nonsimilarity. But model III can consider nonsimilarity and processing times. The proposed method is tested and proved by using numerical examples.