Pre-shipment inspection

Pre-shipment inspection, (also spelled preshipment inspection) or PSI, is a part of supply chain management and an important quality control method for checking the quality of goods clients buy from suppliers.

PSI ensures that production complies with specifications of the buyer and/or the terms of a purchase order or letter of credit. A final random inspection (FRI), checks finished products when at least 80% of an order has been produced and export-packed. Samples are selected at random, according to standards and procedures. Pre-shipment inspection can diminish risks inherent to Internet commerce like phishing and fraud.

Process

The pre-shipment inspection can be agreed upon between a buyer, a supplier, and a bank, and it can be used to initiate payment for a letter of credit. A PSI can be performed at different stages before shipment, such as checking the total amount of goods and packing, controlling the quality or consistency of goods, checking of all documentation, as for example test reports, packaging list, or verification of compliance with standards of the destination country likeASME, CE mark and import duties.

Steps

Initial Production Inspection The objective of an Initial Production Inspection, or Pre Production Inspection (PPI), is to identify defective materials or components prior to the production process, thereby minimizing the risk of non-conformities and allowing for timely corrections where necessary.IPI

During Production Inspection The During Production Inspection (DUPRO or DPI), or In-line Product Inspection (IPI), checks semi-finished or finished goods part-way through the production process. Generally, this takes place when between 40% of your order has been produced and 20% export-packed. Doing so improves your control over production and allows for timely correction of defects and improvements to quality.DUPRO or DPI

Final Random Inspection It ensures that the production complies with your specifications and/or the terms of your purchase order or letter of credit. The Final Random Inspection (FRI), or Pre Shipment Inspection (PSI), checks finished products when at least 80% of your order has been produced and export-packed. Samples are selected at random, according to standards and procedures. FRI

Container Loading Supervision The first stage can be performed by the transport company, but for all other stages including the money transfer via a letter of credit a proper inspection company is needed. In the later case, an inspection certificate is sent after inspection of the goods to the bank issuing the letter of credit and the buyer, initiating the money transfer.

Inspection companies

There are two types of PSI companies - Free-market companies which are privately owned, selling their services to the market. Risks involved might be, especially if it is a smaller company, that paid the company is paid by the manufacturer and working in its interest.

- State owned inspection companies: Only very few companies operating on the market are state-owned or partly state-owned. The shareholding of governmental institutions guarantees independence and objectivity.

A higher form of the PSI is called expediting, in which the dates of delivery and the production are included in the control.

PSI and corruption charges

The Worldbank recommends pre-shipment inspections as a means to fight corruption especially in developing countries. Some countries, like Botswana, require PSIs for all goods entering the country in order to fight corruption. In these cases the PSI must be performed by the company designated by the country.

A well known corruption case is the payment to Asif Ali Zardari, the then husband of Pakistani president Benazir Bhutto. Irregularities were published about the contracts with Paraguay and SGS and the Philippines.