Transportation mode selection in inventory models: A literature review

•Inventory models with multiple transportation modes are classified and reviewed.•Transportation modes and cost functions used in practice are discussed.•Freight cost functions and mode characteristics are presented.•Benefits and weaknesses of methods for modeling multiple modes are discussed.•Areas for future research are identified based on the industrial practices. Despite the significant share of transportation costs in logistics costs and the importance of considering transportation in inventory models, the majority of the existing models either neglect or simplify transportation costs and capacities, often assuming that only one transportation option is available. The complexity of modeling and choosing the optimal transportation mode or combination of modes has increased due to the increased variety of transportation options and pricing schedules after deregulation. In this paper, we review and classify inventory models with multiple transportation modes focusing on the freight cost functions, mode characteristics and the methods for modeling multiple modes. To our knowledge, no such review has previously been published. We discuss the benefits and weaknesses of each modeling method and, based on industrial practices, identify new areas for research.