Simple items are basic components of compound items. Let us take a look at the following example:

A list of this kind, which specifies how a compound item is made of simple items, is known as a product specification, or simply specification.

Specifications serve two purposes: a specification is the plan for manufacturing an item using a work order (the procedure is as follows: purchase of material -> work order -> sale of item) with compound items, a specification is a plan that shows how a compound item must be received or issued for correct inventory at the warehouse(s) (in this case, the procedure is different: purchase of components -> issue of compound item).