Although the adoption of inter-organizational systems (IOS) has been studied extensively in the existing literature, relatively little research attention has been paid to how small firms in supply chains are influenced by their larger partners in making their system sourcing decisions. In this study, we examine how small suppliers may choose their system sourcing approaches to better serve and collaborate with their large customers in supply chains. Our empirical findings suggest that information processing requirements and collaboration needs drive small suppliers to adopt more commercial off-the-shelf software package (i.e., external sourcing) to build their IOSs. Moreover, we find that small suppliers take such external sourcing as a way to achieve system effectiveness and enhance their information processing capabilities. The findings of this study generate important theoretical and managerial implications for IOS adoption and organizational information processing.