Defining ERP System Requirements (A Complete Checklist for Businesses)

Enterprise Resource Planning (ERP) systems such as Microsoft Dynamics 365  are the backbone of any modern business. It’s here to take the load off your business by eliminating manual processes. Modern businesses need to unify finance, operations, inventory, HR, and customer data into a single platform, facilitating data-driven decisions. However, before selecting an ERP solution, it’s essential to clearly define your ERP requirements.

This is a significant step in this era, as ERP implementation should only be successful when a well-defined set of requirements and business risks is thoroughly analyzed before investment. Selecting the wrong system is a waste of money as unnecessary features fail to meet operational needs.

Research indicates that 50% of ERP projects fail to meet their intended goals, often due to a lack of clear requirements.

What Are ERP Requirements?

ERP requirements are meant to assess and collect your functional and non-functional needs so that the enterprise resource planning system you get remains successful in delivering what you need. It acts as a guide for selection and smooth implementation.

Functional Requirements

Functional requirements refer to the system’s capabilities, encompassing business processes and workflows. Examples include:

• Finance & Accounting: General ledger, accounts payable, accounts receivable, multi-currency support.
• Inventory Management: Real-time stock visibility, warehouse management, order tracking.
• Human Resources (HR): Payroll, employee self-service portals, recruitment management.
• Sales & CRM: Lead tracking, customer account management, sales pipeline forecasting.
• Supply Chain: Procurement, logistics, vendor management.

Non-Functional Requirements

Non-functional requirements indicate the performance, usability, scalability, and long-term viability of the system. Examples include:

• Scalability: Will the system be able to handle more load as the business expands?
• Integration: Does it support connection to CRM, e-commerce, or payroll software?
• Security: Does it meet compliance standards such as GDPR, HIPAA, or SOC 2?
• Performance: The speed to process transactions or handle peak workloads?
• User Experience: Is the interface intuitive enough?

What Are ERP Requirements?

ERP requirements are meant to assess and collect your functional and non-functional needs so that the enterprise resource planning system you get remains successful in delivering what you need. It acts as a guide for selection and smooth implementation.

Functional Requirements

Functional requirements refer to the system’s capabilities, encompassing business processes and workflows. Examples include:

• Finance & Accounting: General ledger, accounts payable, accounts receivable, multi-currency support.
• Inventory Management: Real-time stock visibility, warehouse management, order tracking.
• Human Resources (HR): Payroll, employee self-service portals, recruitment management.
• Sales & CRM: Lead tracking, customer account management, sales pipeline forecasting.
• Supply Chain: Procurement, logistics, vendor management.

Non-Functional Requirements

Non-functional requirements indicate the performance, usability, scalability, and long-term viability of the system. Examples include:

• Scalability: Will the system be able to handle more load as the business expands?
• Integration: Does it support connection to CRM, e-commerce, or payroll software?
• Security: Does it meet compliance standards such as GDPR, HIPAA, or SOC 2?
• Performance: The speed to process transactions or handle peak workloads?
• User Experience: Is the interface intuitive enough?

Why ERP Requirements Matter

ERP requirements set the foundation of a successful implementation. It saves businesses from the risk of wasting resources and failing to achieve ROI. This is why it is essential to define everything beforehand; checklist a requirements gathering template will make the work easier.

Some of the important reasons for ERP requirements include:

 1. Avoiding Costly Misalignment

You need to invest a significant amount to implement ERP systems, as this includes software licenses, consulting, training, and long-term maintenance. Therefore, it is crucial to select an ERP for small business that aligns with your business needs. Failing to do so will result in a cost to you.

• Investing in modules you never use.
• Finding out that the critical workflows are absent.
• Customization costs are incurred because you need to set up the system from the start.

This is why it is essential to document requirements in detail, ensuring the system meets your actual needs.

 2. Driving User Adoption

User adoption is the primary reason for implementing a system. If the user fails to adopt it, the whole purpose of the implementation goes in vain. If the software aligns with real-world workflows, its adoption is then successful.

For example:

• Sales teams do not use a CRM module that requires duplicate data entry.
• Finance teams often abandon reporting tools if they don’t receive the necessary metrics.
• Warehouse staff often become frustrated with the complexity of inventory logging processes.

User expectations and clear requirements go hand in hand. The ERP system should be practical and user-friendly.

 3. Supporting Scalability and Growth

Diversity is the main feature of businesses operating today. A company with 50 employees may have a good system, but that will not be suitable for a company with 200 employees. The ERP system must be able to grow as the business scales. Identifying current and future requirements will help avoid costly system migrations or re-implementations later.

Some examples of forward-looking requirements include:

• Multi-currency and multi-language support to support global operations.
• Third-party integrations with eCommerce, logistics, or analytics.
• Cloud deployment options for flexibility and remote accessibility.

 4. Building a Roadmap for Success

ERP requirements help you actually find the correct system that can streamline operations. Vendors, consultants, and internal teams can collaborate to meet the requirements and deliver the best possible solutions. This helps significantly during demonstrations and system configuration. The implementation team can understand the priorities to avoid misaligned expectations leading to failure.

Key ERP Requirements Every Business Should Consider

Never opt for a one-size-fits-all solution, as it will not meet your specific requirements. Every company has different requirements; for instance, a retail company may look very different from a professional services firm. Additionally, you must evaluate core ERP requirements, which fall into two broad categories: functional requirements and non-functional requirements.

Functional ERP Requirements

Functional requirements are basically the basic tasks that you perform every day. Your ERP requirements gathering template must include day-to-day tasks to keep your business running smoothly.

1. Finance & Accounting

Financial management is the most fundamental module of an ERP system, enabling accurate reporting and compliance.

Key capabilities include:

• General Ledger Management – Tracking assets, liabilities, and equity.
• Accounts Payable & Receivable – Automating invoices, payments, and collections.
• Multi-Currency & Multi-Entity Support – Businesses running global operations.
• Budgeting & Forecasting – Predicting cash flow and financial performance.
• Regulatory Compliance – Meeting global and local tax standards.

The ERP system must completely replace manual data entry and offer real-time insights into financial health.

 2. Human Resources (HR) & Payroll

HR is the most important department  of a business, and the ERP solution offers:

• Employee Self-Service Portals – For leave requests, payslips, and HR documentation.
• Payroll Automation – Calculating salaries, benefits, and deductions with compliance built in.
• Recruitment & Onboarding – Applicant tracking and streamlined hiring workflows.
• Performance & Training Management – Aligning workforce growth with business goals.

The data flow is consistent across departments with the centralization of HR.

3. Supply Chain & Inventory Management

An ERP system for supply chain and inventory management must include:

• Real-Time Inventory Tracking – Preventing Stockouts and Overstocking.
• Warehouse Management – pin locations, barcode scanning, and fulfillment automation.
• Procurement Workflows – Vendor management, purchase orders, and approvals.
• Demand Planning & Forecasting – Predicting future inventory needs based on sales data.
• Logistics & Distribution – Shipping, delivery tracking, and returns management.

A good ERP ensures that materials and products flow efficiently, supporting both cost reduction and customer satisfaction.

 4. Sales & Customer Relationship Management (CRM)

Customer data tells the demands of the customers.  The sales and CRM solution must have:

• Lead & Opportunity Tracking – Monitoring prospects through the pipeline.
• Customer Account Management – 360° view of customer interactions.
• Quoting & Order Management – From estimate to invoice in one workflow.
• After-Sales Service & Support – Ticketing, warranties, and SLAs.

ERP and CRM integration facilitates back-office operations, improving both revenue and retention. Additionally, the CRM requirements gathering template will facilitate effective assessment. Also, leveraging RFP automation can streamline the requirements gathering process, ensuring your CRM assessment is accurate, efficient, and aligned with business goals.

 5. Project Management

Service-based organizations need an ERP system to manage their workforce and clients. The ERP must have:

• Resource Allocation – Assigning the right people to the right projects.
• Time & Expense Tracking – Capturing billable hours and costs.
• Project Budgeting & Profitability – Ensuring projects remain financially viable.
• Collaboration Tools – Enabling cross-department teams to work seamlessly.

6. Industry-Specific Features

Special  ERP functions for business provide a level of customization. For example:

• Manufacturing – Bill of materials, shop floor scheduling, quality control.
• Retail & eCommerce – POS integration, omnichannel order management.
• Healthcare – Patient data compliance, electronic medical records (EMR) integration.
• Construction – Job costing, contract management, equipment tracking.

Industry-specific requirements save customizations later. Use an ERP functionality checklist to easily compare features.

 Non-Functional ERP Requirements

Non-functional requirements are equally important as functional requirements. These are significant for user adoption and long-term success.

 1. Scalability

As the business expands, the ERP solution should also be able to grow. It must offer:

User Scalability – Add new users.

• Geographic Scalability – Multi-site, multi-country support.
• Feature Scalability –Add new modules.

 2. Integration Capabilities

Businesses use many tools simultaneously. This is why it should integrate with:

• CRM systems, such as Salesforce or Dynamics 365.
• eCommerce Platforms such as Shopify, Adobe Commerce, or WooCommerce.
• Third-Party Apps for payroll, logistics, or analytics.
• APIs for custom integrations.

Seamless integration saves from redundancy and manual entry.

 3. Security & Compliance

Data needs security, and the  ERP security requirements must include:

• Role-Based Access Control (RBAC) – Ensuring users only see what’s relevant.
• Data Encryption – Protecting sensitive information at rest and in transit.
• Audit Trails – Monitoring activity for compliance.
• Regulatory Compliance – GDPR, HIPAA, SOC 2, or industry-specific regulations.

 4. Deployment & Accessibility

The deployment affects cost and flexibility:

• Cloud ERP – Subscription-based, scalable, remote access.
• On-Premise ERP – More control, higher upfront costs.
• Hybrid Models – Combining both approaches.

Mobile-friendly ERP interfaces negate all location barriers.

 5. User Experience (UX)

An ERP system must be user-friendly and include:

• Intuitive Interfaces – Minimal training needed.
• Customizable Dashboards – Personalized for roles (finance, HR, sales).
• Automation & AI – Reducing repetitive tasks.

 6. Reporting & Analytics

Data should be up to date.

• Real-Time Dashboards – Instant visibility into KPIs.
• Customizable Reports – Tailored to departments.
• Predictive Analytics – Leveraging AI for future insights.

Industry-Specific ERP Requirements

Industry-specific requirements make life easy as the solution is more effective. The company follows unique processes and compliance standards tailored to its business, which effectively streamline operations.

Manufacturing

The ERP for manufacturers must include:

• Bill of Materials (BOM) – Detailed breakdowns of components and raw materials.
• Production Scheduling – Optimizing production runs and reducing downtime.
• Quality Assurance – Ensuring products meet regulatory and internal standards.
• Maintenance Management – Tracking equipment performance to reduce breakdowns.

 Retail & eCommerce

Retailers must meet customer expectations by fulfilling their needs and requirements. ERP requirements include:

• Omnichannel Order Management – Integration with POS, online stores, and marketplaces.
• Inventory Forecasting – Preventing stockouts during peak seasons.
• Customer Loyalty Integration – Rewards, discounts, and membership tracking.
• Returns Management – Automating refunds and exchanges.

Healthcare

Compliance and data security are non-negotiable for any industry. ERP must support:

• Patient Data Integration – Connecting ERP with EMR/EHR systems.
• Regulatory Compliance – HIPAA, GDPR, or regional healthcare laws.
• Medical Supply Chain Management – Ensuring Essential Supplies Are Always Available.
• Billing & Insurance Management – Handling claims efficiently.

Construction & Real Estate

Construction firms handle complex projects and assets, and they need a solution that includes:

• Project Costing & Budgeting – Tracking expenses against budgets.
• Contract Management – Handling subcontractors and legal compliance.
• Equipment Tracking – Monitoring usage, depreciation, and maintenance.
• Field Mobility – On-site teams accessing ERP from mobile devices.

Choose solutions like Microsoft Dynamics 365 Business Central Development that offer industry-specific ERP solutions that truly align with the realities of the relevant sector. Moreover, add a requirements gathering template checklist for non-functional requirements.

Also Read: What is Microsoft Dynamics 365?

Common Mistakes to Avoid When Defining ERP Requirements

Defining ERP requirements is the most important task that can lead to success or failure. It can be challenging at times, as any problem can lead to project delays, cost overruns, or poor adoption. The most common mistakes include:

 1. Not Involving Key Stakeholders

Stakeholders from various departments, including executives, IT, finance, HR, operations, and frontline employees, must define the ERP requirements. Preparing an ERP document will help identify bottlenecks and facilitate better communication among stakeholders. This will help avoid incomplete requirements when multiple teams don’t collaborate.

2.  Focusing Only on Current Needs

Businesses must always think about their future to avoid costly upgrades or replacements. Always keep your future in mind along with your current needs.

 3. Over-Customization

Customization can lead to increased complexity, higher costs, and greater maintenance requirements. Therefore, choosing an ERP system with built-in flexibility or modular add-ons is the best decision.

 4. Ignoring Non-Functional Requirements

Functional requirements are important, but non-functional requirements cannot be neglected, as you need them to grow. Scalability, user experience, or integration are equally important for long-term success.

 5. Underestimating Change Management

The primary objective of implementing an ERP system is to achieve user adoption. If the employees resist adoption, it would be a complete failure. This is why proper training and phased rollouts must be included in the ERP software requirements.

Getting help from a trusted Dynamics 365 Partner can help avoid these mistakes, which can lead to failure, so it is essential to assess them to minimize potential loopholes.

How to Define Your ERP Requirements (Step-by-Step Framework)

Now comes the most crucial part: defining your ERP system requirements checklist. You must follow a step-by-step process to determine your ERP requirements checklist.

Step 1: Assess Current Processes

Review existing workflows across departments thoroughly to identify inefficiencies, manual tasks, and bottlenecks, and create an ERP requirements template. This is the most important step as it outlines what the ERP must do.

Step 2: Engage Stakeholders

Don’t miss anyone from finance, HR, operations, sales, IT, and customer service, as all of them need to describe their requirements and challenges.

Step 3: Differentiate “Must-Haves” from “Nice-to-Haves”

Prioritize requirements on a need basis. Add anything urgent and critical first. Then add the secondary functions later.

Step 4: Consider Future Growth

You must assess your growth in the future, as this helps to add features that offer long-term value. Think about where you want your business to be in the next few years, if you wish to expand internationally, need advanced analytics, or add more modules.

Step 5: Evaluate Compliance Needs

Compliance requirements must also be indicated. Add all your regulatory and industry-specific standards requirements.

Step 6: Map Functional & Non-Functional Requirements

Define functional and non-functional requirements.

• Functional: Multi-currency accounting, project management, HR onboarding workflows.
• Non-Functional: The ERP functional requirements document includes mobile accessibility, role-based security, and cloud scalability.

Step 7: Rank Vendor Fit Against Requirements

After documenting your requirements, the next step is to evaluate ERP vendors. Look for vendors who solve and meet all your requirements and provide an ERP requirements document template for clarity.

Step 8: Conduct Pilot Testing

Don’t deploy the system all at once. First, conduct a phased test to validate that the system meets requirements in practice.

This structured approach helps ensure the proper implementation of the ERP system.

After defining ERP requirements, you need to build a custom app to fulfill your needs. Discover our Power App Development Guide to create tailored solutions that align with your business processes.

Conclusion

Defining ERP system requirements sets the foundation for your digital transformation journey. The right ERP system can provide you with what you need and promote long-term growth and success. The compulsory requirement is to set clear requirements to eliminate business risk, costly mismatches, poor adoption, and missed opportunities.

Identifying both functional and non-functional needs and choosing an industry-specific solution. This will help avoid problems and achieve the true essence of implementing it. All small and large enterprises must initiate the process by establishing well-defined requirements.

Moreover,  ERP consultants can help you select the best system that meets your business needs.

Frequently Asked Questions (FAQs)

1. What are ERP requirements?

ERP requirements refer to the features, functions, and technical specifications your business needs in an ERP system. The requirements include both functional needs and technical needs to support operations, processes, and goals.

2.  Why is it important to define ERP requirements before choosing a system?

Defining ERP requirements helps you select the correct system that can solve all your problems and meet your actual business needs. This saves you from overspending and prevents implementation delays and poor user adoption.

 3. What’s the difference between functional and technical ERP requirements?

• Functional requirements describe what the system should do (e.g., handle payroll, manage inventory).
• Technical requirements focus on how the system performs (e.g., deployment model, performance, integration capability).

 4. Who should be involved in gathering ERP requirements?

Key stakeholders should take part, including:

• Department heads (finance, HR, operations)
• IT personnel
• End users
• Executive leadership

5.  How do I prioritize ERP requirements?

Use a simple framework:

• Must-Have – Critical to daily operations
• Nice-to-Have – Adds efficiency but is not essential.
• Future Need – May be needed as you grow.

This helps guide decisions during ERP selection and budgeting.

 6. What are common mistakes businesses make with ERP requirements?

• Not involving all stakeholders
• Being too vague or generic
• Ignoring future scalability
• Focusing only on cost, not value
• Underestimating change management and training needs

7. Can I use a template or checklist for ERP requirements?

Yes! Many businesses use ERP requirements templates or checklists to track all components and ensure they do not miss any critical ones. This standardized input streamlines the RFP process across departments.

 8. How long does it take to gather ERP requirements?

It may take a few weeks to a few months depending on the size and complexity of the business.

 9. What happens after ERP requirements are defined?

After you finalize ERP requirements, you can:

• Create an RFP (Request for Proposal)
• Shortlist ERP vendors
• Evaluate demos based on your needs.
• Make a more informed, confident selection.

 10. Do you need to hire a consultant to help with ERP requirements?

Hiring a consultant can add significant value if you are new to ERP. They can help:

• Facilitate workshops
• Document requirements
• Recommend vendors
• Manage the selection process.