Transportation mode selection with positive manufacturing lead time G.P. Kiesmu ¨ller * , A.G. de Kok, J.C. Fransoo Department of Technology Management, Technische Universiteit Eindhoven, P.O. Box 513, Paviljoen F14, 5600 MB Eindhoven, Netherlands Abstract In this paper we present a dual supply model taking into account that in many industries the replenish- mentcycledoesnotonlyinvolvethephysicaldistributionofgoods,butalsothemanufacturingofproducts. Further, we suggest postponing the transportation mode decision until the products are available for ship- ping. We investigate a class of order-up-to policies and show how to compute the optimal policy parame- ters.Ourmodelenablesustoquantifythevalueofthepostponementofthetransportationdecisionandthe value of using an additional slow mode instead of only using the existing fast mode. In a numerical study theinfluenceofvariousmodelparametersisinvestigatedanditisshownthattheuseofaslowmodecanbe economically beneficial, especially for low value items. Ó 2005 Elsevier Ltd. All rights reserved. Keywords: Stochastic model; Inventory; Transportation; Dual supply; Europe 1. Introduction InEurope,asinmanyotherregions,roadsaregettingincreasinglycongested.Oneofthecauses is the increase in cargo transportation on EuropeÕs roads. In general, this is mainly attributed to a general increase in economic growth over the past decade, the relatively low cost of truck 1366-5545/$ - see front matter Ó 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.tre.2005.07.003 * Corresponding author. Tel.: +31 40 2473947; fax: +31 40 2464531. E-mail address: g.p.kiesmueller@tm.tue.nl (G.P. Kiesmu ¨ller). www.elsevier.com/locate/tre Transportation Research Part E 41 (2005) 511–530