Is Walmart’s supply chain really that good?

This just sounds problematic. To better serve cash constrained customers and compete with dollar stores, the company wants to flow less expensive smaller pack sizes to stores during the middle and the end of the month when customers have less money while larger packs sizes would be on store shelves at those times right after customers have been paid.

Doing so is seen as a way to improve the company’s competitive position relative to dollar stores who in recent years have expanded their assortments of brand name food and consumables and offer smaller pack sizes that create the appearance of savings.

Walmart is known as having an efficient supply chain supported by a network of highly automated distribution centers and a private truck fleet. The not-so-secret sauce in the efficiency formula is the fact that the company’s suppliers aggressively monitor merchandise inventory levels, sell-through rates and countless other metrics via an information sharing system called Retail Link. Even with this level of supply chain sophistication, Walmart has a hard enough time maintain in stock levels of single-pack sizes and now comes the suggestion that the company wants to layer on the complexity of flowing different pack size to store shelves at different times of the month.

The issue was addressed in a research report this week from Janney Capital Markets titled, “A Joint Look at WMT’s Increasing Appetite to Compete with Dollar Stores,” in which analysts suggested Walmart’s dollar story strategy involves driving liquidity and convenience.

“To combat liquidity Walmart is re-assorting the merchandise offering in several key merchandise categories around the paycheck cycle to emphasize smaller count packaging pre-payday, and then changing the assortment back to larger count package sizes post paycheck,” according to analyst David Strasser.

He offers the example of a 10 pack of diapers emphasized the day or two before payday as consumers struggle with liquidity and then post payday the assortment reverts back to larger size packaging to allow consumers to take advantage of the cost-benefit of volume purchases.

“In general, a larger selection of smaller package sizes also will help price perception, as absolute price points look more competitive relative to the dollar stores,” according to Strasser.

“As for convenience, we believe that an aggressive urban store roll out is in the works, as the company is gearing up its new concept, and working with urban planners and local politicians to get zoning rights for this new concept. This will allow them to compete for locations and convenience with these dollar store customers. With approximately 20,000 dollars stores in operation, from just the big three, we have to believe that Walmart is eyeing significant expansion, and its eyes are getting big. The opportunity is looking juicy as the opportunity is large and promising.”