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 and packaging process is considered an integral part of the final product 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. Incoterms 2020 are robustly adhered to. 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.

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)

Physical goods cannot move across borders without perfect data. Mismatched documents trigger customs holds, storage fees, and line-down penalties.

Requirement: Three-Way Match

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.

OTIF (on-time in-full) measurement

OTIF is the primary metric of supply chain reliability. It is measured 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

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)

When goods arrive damaged, emotion runs high. The strict claims protocol must be followed to ensure insurance payout. “Concealed Damage” significantly complicates or prevents successful recovery/claims.

The 3-Step Protocol:

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):

Visible Damage: Report within 24 hours.
Concealed Damage: Report within 5 days.
Requirement: Submit Photo Evidence + Signed BOL + Commercial Invoice value.

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.

Recap: Fulfillment & Logistics Compliance

Parameter	Requirement	Value / Tolerance	Action / Condition
OTIF (On-Time)	Shipment leaves dock within defined window relative to Promise Date.	Early Window: -3 days. Late Window: 0 days.	Fail if late. Pass only if date updated for authorized push-out.
OTIF (In-Full)	Quantity shipped matches Scheduled Line Quantity.	Partial shipment = Fail (unless explicitly authorized).	Fail if quantity is not 100%.
Incoterms (Risk Transfer)	Risk ownership must be contractually defined.	EXW: At factory dock upon carrier loading. DAP: At customer facility prior to unloading.	Must be specified on Commercial Invoice.
Documentation (Three-Way Match)	PO, Commercial Invoice, and Packing List data must align perfectly.	HS Code, Country of Origin, Incoterm, quantities, weights, and labels must match.	Customs seizure or carrier refusal if mismatched. HS Code must be provided by Customer.
Freight Claim Notification	Damage must be reported within strict deadlines.	Visible Damage: 24 hours. Concealed Damage: 5 days.	Annotate BOL as “DAMAGED”, take photos, submit evidence. Do not sign “Clear”.