Chapter 5: Inbound Logistics
Engr. Darlene Gayle D. Dela Fuente, MSEM, CLSSGB
Department of Industrial Engineering
IE 420
Inbound • The way materials and other goods are brought into a company.
• Includes the steps to order, receive, store, transport and manage
Logistics
incoming supplies.
• focuses on the supply part of the supply-demand equation.
• refers to the transportation, storage, and
receiving of goods into a business.
• It relates to goods procurement for office use
or the production unit.
Inbound Logistics
Inbound vs
Outbound?
Inbound vs Outbound Logistics
Inbound Logistics Outbound Logistics
• Includes receiving of raw material or supplies • Includes delivery of finished products to end-
from a supplier to an inbound warehouse customer
• Focuses on supply • Focuses on demand
• The flow of material is from suppliers, • The flow of material/goods from a company,
manufacturers, or distributors to a retailer, brand, brand, or retailer to customers
or 3PL provider • Processes involved are shipping, delivery, and
• Activities involved are material sourcing, material customer service
management, and warehouse receiving • Involves communication between the company
• Involves interaction between supplier and the and end-customers
company.
Processes involved in Inbound Logistics Services
Finding out Placing an Deciding the Unloading Moving the
Sourcing & Procurement
Purchasing or Ordering
Receiving
Material Management
Transportation
potential order of the mode of trucks ad received
suppliers, goods or raw transportation receiving the material
getting price material that and discussing ordered within the
quotes, and the company price and material, and facility
managing requires. route with the ensuring its
suppliers third-party quantity and
carrier. quality.
Processes involved in Inbound Logistics Services
Storing the Keep track of Sending Bringing the
Inventory Management
Storing and Warehousing
Reverse logistics
Distribution and Tracking
material in the the inventory. material or raw material of
right conditions goods to the goods back to
before distributors and the facility in
transporting it tracking them case of defects,
to the in real time delivery issues,
manufacturer. repair and
other problems
Advantages of Inbound Logistics
Predictable Superior Timely and
raw material product cost-
cost quality controlled
deliveries
Lower Improved Stronger
shipping and inventory vendor
receiving costs management relationships
Challenges in
Inbound Logistics
• Shipping inefficiencies
• Lack of information on the
shipment
• Improper management of
deliveries and receiving
• Inability to process returns
• Communication gap with suppliers
• High inbound transportation cost
• Fluctuations in supply and
demand
IDENTIFY YOUR CURRENT MAINTAIN A STRONG BUILD STRATEGIES TO USE A TRANSPORT
PROCESSES AND EVALUATE RELATIONSHIP WITH ADDRESS INEFFICIENCIES MANAGEMENT SYSTEM.
YOUR REQUIREMENTS. SUPPLIERS
How to Optimize Inbound Logistics?
INCOTERMS
The word INCOTERM is an abbreviation for International Commercial Terms.
Provide a common set of rules used for defining the responsibilities of sellers and buyers in the delivery
of goods under sales contracts. They are widely used in international commercial transactions.
INCOTERM rules are standard sets of trading terms and conditions designed to assist traders when goods
are sold and transported.
Prevent confusion in foreign trade contracts by clarifying the obligations of buyers and sellers.
INCOTERM Rule specifies
• the obligations of each party
(e.g. who is responsible for
services such as transport;
import and export clearance
etc.
• the point in the journey
where risk transfers from the
seller to the buyer.
Understanding the INCOTERM
• The International Chamber of Commerce
(ICC) developed Incoterms in 1936 and
updated them periodically to conform to
changing trade practices.
• To promote open markets and ensure global
economic prosperity through trade.
• the ICC established rules are commonly used
by buyers and sellers as a regular part of
trade transactions.
• Incoterms provide a universal set of rules
and guidelines that help facilitate trade. In
essence, they provide a common language
traders can use to set the terms for their
trades.
Importance of Incoterms
• Set international rules for commonly
used terms in foreign trade.
• Define the obligations of both parties
involved in the transaction
• Determine the distribution and
transfer of risks regarding the goods
delivered from the seller and buyer.
• State the clear sharing of expenses
between the parties during transport.
11 Incoterms
Transportation Definitions
• Pre-carriage - inland transportation on the
seller’s side --*empty container.
Domestic: from the place where the
shipment starts to any subsequent
transportation carriage.
International: from the place where the
shipment starts to the departure point on
the seller’s side.
• Main Carriage
Domestic: subsequent transportation
beyond pre-carriage.
International: transportation from the
point of departure on the seller’s side to
the arrival point on the buyer’s side.
Transportation Definitions
• On-carriage - *full container-unpacking
Domestic: subsequent transportation
beyond the main carriage.
International: transportation from the arrival
point on the buyer’s side.
• Door-to-Door – Contract of carriage that includes
pre-carriage, main carriage, and on-carriage by
the same carrier.
• Door-to-(Air)Port – Contact of carriage including
pre-carriage and main carriage to airport or ocean
port or truck terminal port or rail port.
• (Air)Port-to-(Air)Port – contract of carriage for
main carriage only
• (Air)Port-to-Door – Contract of carriage including
main and on-carriage
SHIPMENT CONTRACT – ARRIVAL CONTRACT –
Contracts
SALES/PURCHASE CONTRACT SALES/PURCHASE CONTRACT
WHERE THE SELLER’S WHERE SELLER’S RESPONSIBILITY
RESPONSIBILITY ENDS WHEN ENDS WHEN GOODS HAVE
GOODS ARE HANDED OVER TO ARRIVED AT AGREED PLACE
THE FIRST CARRIER.
• Can be used for any transport mode, or where there is
more than one transport mode.
• the seller delivers when it places the goods at the
disposal of the buyer at the seller’s premises or
another named place (ie. works, factory, warehouse,
etc.).
Ex-Works
(EXW)
EXW
This rule places minimum responsibility on the seller, who merely has to
make the goods available, suitably packaged, at the specified place,
usually the seller’s factory or depot.
In many cross-border transactions, this rule can present practical
difficulties.
Specifically, the exporter may still need to be involved in export reporting
and clearance processes, and cannot realistically leave these to the buyer.
• Can be used for any transport mode, or where
there is more than one transport mode.
Free Carrier (FCA) • A very flexible rule that is suitable for all
situations where the buyer arranges the main
carriage.
FCA
• Seller arranges pre-carriage
from seller’s depot to the
named place, which can be a
terminal or transport hub,
forwarder’s warehouse etc.
Delivery and transfer of risk
takes place when the truck or
other vehicle arrives at this
place, ready for unloading – in
other words, the carrier is
responsible for unloading the
goods.
• Where the named place is the
seller’s premises, then the seller
is responsible for loading the
goods onto the truck etc.
Free Alongside Ship (FAS)
• Use of this rule is restricted to goods
transported by sea or inland
waterway.
• In practice it should be used for
situations where the seller has direct
access to the vessel for loading, e.g.
bulk cargo or non-containerized
goods.
• For containerized goods, consider
“Free Carrier FCA” instead.
• Seller delivers goods, cleared for
export, alongside the vessel at a
named port, at which point risk
transfers to the buyer.
• The buyer is responsible for loading
the goods and all costs thereafter.
Free on Board • Use of this rule is restricted to goods transported
by sea or inland waterway.
(FOB) • In practice it should be used for situations where
the seller has direct access to the vessel for
loading, e.g. bulk cargos or non-containerized
goods.
• For containerized goods, consider “Free Carrier
FCA” instead.
Carriage Paid To
(CPT)
• Can be used for any transport
mode, or where there is more
than one transport mode.
• The seller is responsible for
arranging carriage to the
named place, but not for
insuring the goods to the
named place.
CPT
Carriage and
Insurance Paid to
(CIP)
• Can be used for any
transport mode, or where
there is more than one
transport mode.
• The seller is responsible for
arranging carriage to the
named place, and also for
insuring the goods.
Cost and Freight (CFR)
• Use of this rule is restricted to goods
transported by sea or inland waterway.
• In practice it should be used for situations
where the seller has direct access to the
vessel for loading, e.g. bulk cargos or non-
containerized goods.
• For containerized goods, consider ‘Carriage
Paid To CPT’ instead.
CFR
• Seller arranges and pays for
transport to named port. Seller
delivers goods, cleared for
export, loaded on board the
vessel.
• However risk transfers from
seller to buyer once the goods
have been loaded on board,
i.e. before the main carriage
takes place.
• Use of this rule is restricted to goods transported by sea or inland
waterway.
• In practice it should be used for situations where the seller has
direct access to the vessel for loading, e.g. bulk cargo or non-
containerized goods.
Cost • For containerized goods, consider ‘Carriage and Insurance Paid
CIP’ instead.
Insurance
and Freight
(CIF)
CIF
• Seller arranges and pays for
transport to the named port.
Seller delivers goods, cleared for
export, and loaded on board the
vessel.
• However, risk transfers from seller
to buyer once the goods have
been loaded on board, i.e. before
the main carriage takes place.
• Seller also arranges and pays for
insurance for the goods for
carriage to the named port.
Delivered at Place
Unloaded – Incoterms
2020
Delivered at Terminal (DAT) – Incoterms 2010
• Can be used for any
transport mode, or where
there is more than one
transport mode.
• The seller is responsible for
arranging carriage and for
delivering the goods,
unloaded from the arriving
means of transport, at the
named place.
DPU
• Risk transfers from seller to buyer when the goods
have been unloaded.
• ‘Terminal’ can be any place – a quay, container
yard, warehouse or transport hub.
• The buyer is responsible for import clearance and
any applicable local taxes or import duties.
• Things to watch for:
The place for delivery should be specified as
precisely as possible, as many ports and
transport hubs are very large.
A useful rule, well suited to container
operations where the seller bears
responsibility for the main carriage.
Delivered at Place
(DAP)
• Can be used for any transport
mode, or where there is more than
one transport mode.
• The seller is responsible for
arranging carriage and for
delivering the goods, ready for
unloading from the arriving means
of transport, at the named place.
• Risk transfers from seller to buyer
when the goods are available for
unloading; so unloading is at the
buyer’s risk.
• The buyer is responsible for import
clearance and any applicable local
taxes or import duties.
Delivered Duty Paid (DDP)
• Can be used for any transport mode, or where there is more than one transport mode.
• The seller is responsible for arranging carriage and delivering the goods at the named place,
cleared for import and all applicable taxes and duties paid (e.g. VAT, GST)
DDP
• Risk transfers from seller to buyer when the
goods are made available to the buyer, ready
for unloading from the arriving means of
transport
• This rule places the maximum obligation on
the seller, and is the only rule that requires
the seller to take responsibility for import
clearance and payment of taxes and/or
import duty.
• These last requirements can be highly
problematical for the seller. In some
countries, import clearance procedures are
complex and bureaucratic, and so best left to
the buyer who has local knowledge.
Classification
of Incoterms
Documentary Credits
A Documentary Credit Method of payment that Ensures that the exporter
(“D/C”) also known as protects both the seller receives payment
Letter of Credit (“L/C”). (exporter) and the buyer immediately after the
(importer) in a contract of goods have been sent.
sale.
Parties to Documentary Credits
• Applicant - the buyer of the goods. The importer
who requests his bank to issue a letter of credit
in favor of a named beneficiary against
tendering of certain specified documents.
Supply the bank with complete instructions
Issue instructions for amendments, if any.
Decide on discrepancies reported by the
issuing bank to him
Arrange fur funds at the payment time.
Parties to Documentary
Credits
• Beneficiary - the seller of goods who
receives payment under documentary
credit.
• A credit issued in favour of the
beneficiary to enable him or his agent to
obtain payment once he performed his
part of contract and submitted
stipulated documents showing
compliance with the terms and
conditions of letter of credit.
• In case of a transferable letter of credit
the credit is transferred to another party
the original beneficiary is known as first
beneficiary the person to whom the
credit is transferred is known as the
second beneficiary.
Role of Beneficiary
Parties to Documentary
Credits
• Bankers
Issuing bank - the opening bank issues the
credit.
Advising bank - advises the credit to the
beneficiary thereby authenticating the
genuineness of the credit.
Confirming bank - is the one which adds its
guarantee to the credit It undertakes the
responsibility of payments negotiation
acceptance under the credit in addition to that
of the issuing bank.
Nominated bank - the bank nominated or
authorized by the issuing bank to pay to incur a
deferred payment liability to accept drafts or to
negotiate the credit
Reimbursing bank - the bank authorized to
honour the reimbursement claims in the
settlement of negotiation with the paying or
accepting bank
Parties to
Documentary Credits
• Insurer - The insurer has the
prime responsibility for
insuring the goods as
provided for in the credit.
• Carrier - The carrier i e the
shipping company or airline
or road transport agency is
responsible for safe arrival of
the goods at the destination.
General Documents under
Documentary Credits
Commercial Packing list Bill of lading Certificate of
invoice and other Origin
transport
Inspection Bill of Insurance
certificate Exchange Documents
Q&A