Many algorithms for cell formation have been developed for past three decades in cellular manufacturing. Some use binary data for cell formation and others use production data such as operation sequence, processing times, production volumes, etc. for cell formation. All these algorithms assume that the conversion of job shop to cellular manufacturing is performed comprehensively. (In other words, they assume that all the cells are formed at a time.) However, this is far from reality. In practice, cell formation is done incrementally, one after the other, rather than comprehensively. None of the algorithms developed so far addresses the issue of incremental cell formation. In this paper, the incremental cell formation problem is defined and various categories of problems are mentioned. One type of those categories is selected for solving. Two methods, namely the branch and bound technique and a heuristic based on a multistage programming approach, have been applied to solve the chosen problem. Data sets have been generated to compare these two methods in terms of quality of solution and demand on computational time. It has been found that the branch and bound technique gives a superior quality solution, but is computationally more demanding, where as heuristic based on a multistage programming approach is computationally far superior.