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. We treat the shipping container 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

Incoterms define who pays the freight and, more importantly, who owns the risk if the truck flips over. We strictly adhere to Incoterms 2020. Ambiguity here leads to unrecoverable losses.

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)

• 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.

Decision Logic:

• If Customer has a global logistics contract → Then Use EXW (They have better rates).
• If Customer is a startup/local → Then Use DAP (We manage the complexity, they pay the markup).

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, Dim, Box Count, Pallet Count.	Carrier refusal; Warehouse rejection.
Labeling	Part #, Rev Level, Qty, Barcode (Code 128/QR), COO.	Receiving delay; "Lost" inventory.

Pro-Tip: Never guess the HTS / HS Code. Using the wrong code constitutes customs fraud. If unsure, require the Customer (Importer of Record) to provide the binding classification.

OTIF (On-Time In-Full) Measurement

OTIF is the primary metric of supply chain reliability. We measure it rigorously to prevent subjective arguments.

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:

OTIF% = Number of Perfect Lines / Total Lines Shipped

Scenario Logic:

• If factory ships 100% quantity but 1 day late → Then Score = 0 (Fail).
• If factory ships 90% quantity on time → Then Score = 0 (Fail).
• If Customer requests a push-out and we meet the new date → Then Score = 1 (Pass). Update the system date!

Freight Claims Process (Damage Control)

When goods arrive damaged, emotion runs high. Follow the strict claims protocol to ensure insurance payout. "Concealed Damage" is the enemy of recovery.

The 3-Step Protocol:

Upon Receipt (The Visual Check):

• Inspect: Look for tipped shock-watch stickers, crushed corners, or torn wrap.
• Action: Do not sign "Clear." Notate "DAMAGED" or "SUBJECT TO INSPECTION" on the Bill of Lading (BOL). Take photos immediately while cargo is on the truck if possible.

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:

• If EXW: Customer claims against their carrier. Factory assists with data.
• If DAP: Factory claims against carrier. Factory issues RMA and replacement order.

Shipment Checklist

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