Transportation mode selection with positive manufacturing lead time

In this paper we present a dual supply model taking into account that in many industries the replenishment cycle does not only involve the physical distribution of goods, but also the manufacturing of products. Further, we suggest postponing the transportation mode decision until the products are available for shipping. We investigate a class of order-up-to policies and show how to compute the optimal policy parameters. Our model enables us to quantify the value of the postponement of the transportation decision and the value of using an additional slow mode instead of only using the existing fast mode. In a numerical study the influence of various model parameters is investigated and it is shown that the use of a slow mode can be economically beneficial, especially for low value items. (c) 2005 Elsevier Ltd. All rights reserved.