As inventories are used, variances will occur from time to time. This is particularly true when storerooms are uncontrolled and unmanned during off shifts. Spare parts will get used, and the usage is not always properly documented. This leads to spare parts no longer appearing in inventory, but without a clear place to debit the cost. When this occurs, an inventory valuation adjustment is required. Figure 8-1 shows a sample inventory valuation adjustment process.

Figure 8-1: Adjustment of Inventory Valuation Process

The need for MRO inventory adjustments is typically identified when cycle counting the inventory. During a cycle count, various components in the inventory are physically counted. When the on-hand quantity varies from what the inventory records show, the valuation adjustment is necessary.

Because adjusting the inventory valuation involves accounting practices, it is always wise to consult the accounting department before making any inventory valuation adjustments. It is likely they will want to develop the appropriate business case, because it may involve company taxes. Once the appropriate business case has been developed, it must be submitted to senior management for approval. If the business case is not properly prepared, it is unlikely to be approved when first presented. The executive management will probably make the team review, reevaluate the circumstances for the adjustment, and resubmit the proposal for approval.

When the proper business case has been constructed, it will be approved. For each line item that needs an adjustment, there will then need to be a reason for the adjustment.