Newton, Mass. — Companies are increasingly using the Internet to purchase direct and indirect goods and services, and they are saving money as a result. That's according to the latest ISM/Forrester Report on Technology in Supply Management.

In late October, the survey showed that for the second consecutive quarter, the percentage of direct materials purchased using the Internet surpassed that of indirect materials. Developed by the Institute for Supply Management and Forrester Research, the study tracks online activity for both manufacturing and non-manufacturing companies.

Survey respondents spent an average 13 percent of their total direct materials purchases using the Internet in the third quarter of 2003, up from 12 percent in the second quarter. Indirect materials spending grew from 11 percent in the second quarter to 12 percent in the third quarter.

In addition, 35 percent of respondents said they saved money by making online purchases, up from 30 percent in the second quarter.

Better savings opportunities caused large companies — those that spend more than $100 million on procurement per year — to lead in Internet adoption. The size and buying power of those companies help them contain costs and secure supplier participation, according to ISM/Forrester.

"These survey results show that success in online purchasing is a matter of position, priorities, and persistence," said Andrew Bartels, research analyst at Forrester. "Larger companies, so far, have been in a better position to afford the available solutions and gain supplier participation.

"Non-manufacturing companies have made eProcurement and Internet-based sourcing a higher priority than manufacturers have … Above all, though, success stems from persistence over time in making the needed process changes, gaining employee and supplier participation, and linking online sourcing to enterprise-wide eProcurement systems to create real bottom-line savings."

Other key findings from the survey include:

Only 25 percent of companies participated in online auctions, and 33 percent used eMarketplaces. Non-manufacturing companies are more advanced in their use of online marketplaces and company-wide eProcurement tools. This group tends to consist of service companies that lack alternate channels for buying and have very specific direct purchasing needs.

Supplier collaboration increased in the third quarter. Sixty-three percent of companies collaborated with suppliers online, up modestly from 61 percent in the second quarter. However, satisfaction with suppliers' online capabilities showed little improvement in the third quarter.

Online RFP usage continues to rise. During the third quarter, 69 percent of companies used the Internet in their RFP process, up from 62 percent in the second quarter.

ISM/Forrester surveyed 294 supply management executives from both manufacturing and non-manufacturing organizations for the third-quarter report