4.5 Fulfillment & logistics: incoterms, OTIF & claims
Logistics is the final step of the manufacturing process, not an afterthought. A product that is technically perfect but arrives damaged or late is a commercial failure. The shipping container is treated as the final component of the assembly. The goal is “Dock-to-Stock” efficiency, where the customer can receive, scan, and deploy the inventory without manual intervention.
Incoterms & transfer of risk
Section titled “Incoterms & transfer of risk”Incoterms define who pays the freight and, more importantly, who owns the risk if the truck flips over. Incoterms 2020 are robustly adhered to. Ambiguity here leads to unrecoverable losses.
Standard policy: EXW (ex works) - factory gate
Section titled “Standard policy: EXW (ex works) - factory gate”- Factory Responsibility: Pack, Label, and Make Available at the loading dock.
- Customer Responsibility: Arrange freight, Pay freight, Insurance, Import Duties.
- Risk Transfer: The moment the Customer’s carrier loads the pallet.
Exception policy: DAP (delivered at place)
Section titled “Exception policy: DAP (delivered at place)”- Factory Responsibility: Deliver to Customer’s door.
- Risk Transfer: At the customer’s facility, prior to unloading.
- Requirement: Freight cost must be explicitly quoted and added to the invoice.
Incoterm selection strategy:
Section titled “Incoterm selection strategy:”- Customers holding heavily negotiated, global logistics contracts should default to EXW. They will almost always secure better freight rates than the factory.
- Startups or smaller local entities lacking a dedicated logistics team benefit from DAP. The factory manages the complexity, ensures safe transit, and applies a standard markup for the service.
Documentation standards (the digital twin)
Section titled “Documentation standards (the digital twin)”Physical goods cannot move across borders without perfect data. Mismatched documents trigger customs holds, storage fees, and line-down penalties.
The “Three-Way Match” Requirement:
The Purchase Order (PO), Commercial Invoice (CI), and Packing List (PL) must align perfectly.
| Document | Critical Data Points | Failure Consequence |
|---|---|---|
| Commercial Invoice | HS Code, Country of Origin, Incoterm, Unit Price, Total Value. | Customs seizure; Duty miscalculation. |
| Packing List | Net/Gross Weight, Dimensions, Box Count, Pallet Count. | Carrier refusal; Warehouse rejection. |
| Labeling | Part #, Revision Level, Quantity, Barcode (Code 128/QR), Country of Origin. | Receiving delay; “Lost” inventory. |
Pro-Tip: The HTS / HS Code must never be guessed. Using the wrong code constitutes customs fraud. If unsure, the Customer (Importer of Record) must be required to provide the binding classification.
OTIF (on-time in-full) measurement
Section titled “OTIF (on-time in-full) measurement”OTIF is the primary metric of supply chain reliability. It is measured rigorously to prevent subjective arguments.
Definition:
Section titled “Definition:”- On-Time: Shipment leaves the dock within the defined window relative to the Promise Date.
- Early Window: -3 Days (Acceptable).
- Late Window: 0 Days (Strict).
- In-Full: Quantity shipped matches the Scheduled Line Quantity.
- Partial: = Fail (unless authorized).
Calculation logic
Section titled “Calculation logic”OTIF% = Number of Perfect Lines / Total Lines Shipped
OTIF scoring scenarios:
Section titled “OTIF scoring scenarios:”- Shipping 100% of the required quantity even one day late against the Promise Date results in an OTIF Score of 0 (Fail). Time is a binary metric.
- Shipping 90% of the required quantity exactly on the Promise Date results in an OTIF Score of 0 (Fail). Volume is a binary metric.
- Meeting a newly agreed upon date following an explicit customer request for a schedule push-out results in an OTIF Score of 1 (Pass). The system date must be updated to reflect the new baseline.
Freight claims process (damage control)
Section titled “Freight claims process (damage control)”When goods arrive damaged, emotion runs high. The strict claims protocol must be followed to ensure insurance payout. “Concealed Damage” is the enemy of recovery.
The 3-Step Protocol:
Upon receipt (the visual check):
Section titled “Upon receipt (the visual check):”- Inspect: Look for tipped shock-watch stickers, crushed corners, or torn wrap.
- Action: “Clear” must not be signed. “DAMAGED” or “SUBJECT TO INSPECTION” must be notated on the Bill of Lading (BOL). Photos must be taken immediately while cargo is on the truck if possible.
Reporting (the clock):
Section titled “Reporting (the clock):”- Visible Damage: Report within 24 hours.
- Concealed Damage: Report within 5 days.
- Requirement: Submit Photo Evidence + Signed BOL + Commercial Invoice value.
Resolution:
Section titled “Resolution:”- EXW Shipments: The customer files the claim directly against their chosen carrier. The factory assists by providing all necessary loading data, photographs, and documentation.
- DAP Shipments: The factory files the claim against the carrier we selected. Concurrently, the factory issues an RMA to the customer and immediately initiates a replacement order to minimize their downtime.
Final Checkout: Fulfillment & logistics: incoterms, OTIF & claims
Section titled “Final Checkout: Fulfillment & logistics: incoterms, OTIF & claims”| Control Point | Passing Criteria | State |
|---|---|---|
| Physical Count | Box count matches Packing List exactly. | Match |
| Labeling | Every box has a visible, scannable label on the side (not top). | Verified |
| Pallet Integrity | Shrink-wrapped, strapped, no overhang, “Do Not Stack” cones applied. | Secure |
| Docs on Box | Packing List & CI enclosed in a “Packing List Enclosed” pouch on Pallet #1. | Attached |
| Digital Alert | ASN (Advance Shipping Notice) sent to customer via EDI or Email. | Sent |
| Trucker Sign-off | Driver has signed the BOL confirming piece count. | Signed |