A Guide to ERP Requirements and Selection
Choosing an ERP system starts with understanding what your business needs it to do. Without clearly defined ERP requirements, it can be difficult to compare and evaluate solutions, or determine whether a system will support your operations.
Developing ERP requirements gives your team a structured way to connect business goals with the capabilities a new system should provide. It also creates a consistent basis for evaluating potential solutions.
This guide explains how to identify functional and technical requirements, prioritize business needs, and use your requirements to compare ERP systems.
What Are ERP Requirements?
ERP requirements describe the capabilities, processes, and technical features your business needs from an ERP system. They should reflect how your organization operates today and what it needs to accomplish in the future.
Requirements generally fall into three categories:
- Functional requirements: What the ERP system must do, such as manage financial transactions, track inventory, or process orders.
- Technical requirements: How the system must operate and connect with your technology environment, including integrations, security, and data management.
- Business and selection criteria: Factors that influence whether a solution is a good fit, such as usability, scalability, solution support, and total cost.
The goal is to identify the capabilities your business needs, distinguish essential requirements from preferences, and use that information to evaluate ERP solutions.
1. Start with Business Goals and Process Needs
Before listing software features, clarify the business problems you want your ERP system to solve. ERP requirements should be connected to business goals, not based on the functions your current system happens to offer.
Explore questions such as:
- What processes are inefficient, manual, or difficult to manage?
- Where do employees rely on spreadsheets or duplicate data entry?
- What information is difficult to access or trust?
- Which processes need better visibility, control, or consistency?
- What business changes or growth plans should the ERP support?
Use these discussions to identify the underlying business need. For example, “improve inventory” is too broad to guide software selection. A more useful requirement might specify that employees need to view available inventory by location and account for quantities already committed to orders.
A well-defined requirement should make it clear who needs the capability, what they need to do, and why it matters.
2. Identify Functional ERP Requirements
Functional requirements describe the business activities your ERP system must support. The relevant capabilities will vary by industry, organization size, and business model.
Financial Management
Consider what your finance team needs to manage and report on:
- General ledger, accounts payable, and accounts receivable
- Financial reporting and period-end close
- Budgeting, forecasting, and financial planning
- Multiple entities, currencies, or locations
- Expense management and approvals
- Audit trails and internal controls
Inventory and Warehouse Management
For businesses that manage inventory, requirements may include:
- Inventory quantities and availability by location
- Lot, serial number, or expiration-date tracking
- Inventory transfers and adjustments
- Replenishment and reorder planning
- Warehouse processes, including receiving, picking, and shipping
- Inventory valuation and reporting
Supply Chain and Procurement
Identify the capabilities needed to manage purchasing and supplier activity:
- Purchase requisitions and purchase orders
- Approval workflows and purchasing controls
- Supplier information and performance
- Demand planning and supply planning
- Purchasing visibility across locations or business units
- Tracking of order status, lead times, and costs
Manufacturing
Manufacturers may need ERP capabilities that support production planning and execution, including:
- Bills of materials and routings
- Production orders and work orders
- Material requirements planning (MRP)
- Capacity and production scheduling
- Work-in-process tracking
- Quality management and traceability
- Production costing and variance analysis
Sales and Order Management
Consider how the system should support customer-facing processes:
- Customer records and order history
- Sales order entry and processing
- Pricing, discounts, and customer-specific terms
- Order fulfillment and shipment tracking
- Returns and credit processing
- Visibility into order status and availability
Reporting and Analytics
Identify the information users need to make decisions:
- Standard financial and operational reports
- Dashboards for different roles or departments
- Reporting across business units, locations, or entities
- Timely access to reliable business data
- Ability to analyze trends, exceptions, and performance
3. Define Technical ERP Requirements
Technical requirements help determine whether an ERP solution will work within your existing technology environment and meet your organization’s operational needs.
Integrations
Identify the systems your ERP must exchange data with, such as:
- Customer relationship management (CRM) software
- E-commerce platforms
- Payroll, banking, or expense applications
- Warehouse, shipping, or manufacturing systems
- Business intelligence and reporting tools
For each integration, define:
- Which information needs to move between systems
- How frequently the data must be updated
- Which system should be the source of truth
- Whether the exchange needs to happen automatically or can be handled through a scheduled process
Data Management and Migration
Consider what data the ERP must maintain and how it will be managed:
- Data from existing ERP or business applications
- Customer, supplier, item, and financial records
- Data quality, duplication, and validation requirements
- Retention, access, and reporting needs
- Historical data users need to reference
Security and Access
Document how the system should protect business information and control access:
- Role-based permissions
- Separation of duties and approval controls
- Audit logs and activity history
- Data protection and privacy requirements
- Authentication and access policies
Scalability and Performance
Think about how the system should perform as your business changes:
- More users, transactions, products, or locations
- Increased reporting and data needs
- New business units or entities
- Reliable performance during peak activity
- Flexibility to add capabilities as requirements evolve
Make technical requirements specific enough to discuss with ERP solution providers or partners. Clear requirements help your team assess whether a solution meets your needs directly or would depend on additional configuration, integrations, or other work.
4. Evaluate Business and ERP Selection Criteria
A system may meet your functional and technical requirements but still be a poor fit for your organization. Consider factors that affect how well the ERP will work for your people and business.
Evaluate:
- Usability: Can employees complete key tasks efficiently? Does the system support the needs of different roles?
- Flexibility: Can workflows, reports, and processes be configured to fit your business?
- Scalability: Can the solution support planned growth, new locations, or changes in operations?
- Partner support: What implementation, training, and ongoing support resources are available?
- Total cost of ownership (TCO): What costs should you account for, including licensing, services, integrations, support, and future enhancements?
5. Use ERP Requirements to Compare Solutions
Once you’ve identified and prioritized your ERP system requirements, use them to evaluate potential solutions. Rather than relying on broad product claims or a standard solution demonstration, focus on how each system supports your business processes.
Evaluate ERP Systems Through Real Business Scenarios
Choose several important requirements and ask potential ERP partners to demonstrate how the ERP system would handle relevant activities, such as:
- Entering and approving a purchase order
- Checking inventory availability across locations
- Processing a customer order from entry through fulfillment
- Reviewing financial results across entities or business units
- Tracking a manufacturing order through production and costing
Seeing these processes in action can help your team determine whether a system meets your needs, requires additional configuration, or depends on integrations or other capabilities.
Compare What Each Solution Can Deliver
As you evaluate ERP solutions, consider:
- How well the system meets your key requirements
- Any limitations, assumptions, or gaps
- Whether additional configuration, customization, or integrations are needed
- Potential costs or dependencies
- Questions that need further discussion
Your requirements document can serve as a shared reference throughout the selection process. Keep the requirements, priorities, and solution findings together so your team can compare solutions against the same business needs.
Get Help Defining Your ERP Requirements
Defining ERP requirements is an important step toward choosing a system that fits your business. If your team needs help evaluating its options, Terillium’s ERP assessment process can provide a clearer path forward.
Terillium works with your team to review business software needs and key functionality, evaluate data and third-party applications, and recommend an ERP solution based on your goals. An assessment can also provide direction on implementation approach, estimated software and implementation costs, project timelines, and your future ERP roadmap.
