The term “rubber” refers to a highly elastic material which can be stretched to a massive degree without breaking, and which has the ability to return quickly to its original length on release of the stretching force (Barlow et al. 1994). Rubber is a commodity that is used in many products and applications around the world, for both industrial and household use. These range from footwear, to conveyor belts, to sophisticated products such as medical gloves and condoms (Chanchaichujit 2014). The majority of rubber is used in the automobile industry, particularly for tyres. There are two types of rubber : natural and synthetic. Natural rubber is made from the white liquid contents of the rubber tree, whereas synthetic rubber is made in chemical plants using petrochemical products. There are many different types of synthetic rubber products, including emulsion styrene-butadiene rubber (E-SBR), neoprene, nitrile and polyurethane, among many others. However, the most widely used commercial products are generally E-SBR, polybutadiene and neoprene (EIRI 2014).
In the past, natural and synthetic rubber have been considered as product substitutes due to their properties and characteristics. Therefore, changes in the relative price influence the supply and demand of both. For example, when the price of natural rubber rises, the market is more likely to switch to synthetic rubber. Conversely, a rise in petroleum prices may cause a rise in natural rubber demand. However, the interchangeability between synthetic rubber and natural rubber is currently not as strong as it has been in the past, and to assume that this is the case can be risky, as the different modes of production impact the production costs and quality of the various rubber products. Another important factor is customer preference, as the needs of rubber customers can be very sophisticated. Thus, in today’s business environment, natural rubber and synthetic rubber are more complementary than substitutive (Barlow et al. 1994). In terms of organisational structure, synthetic rubber production organises itself around large-scale facilities with advanced technology production and is dominated by global enterprises. Since synthetic rubber is a petroleum derived product manufactured in chemical plants, supply and demand management is relatively straightforward. On the other hand, natural rubber is an agricultural commodity which is consumed as an industrial raw material. Over 80% of natural rubber is sourced and processed from millions of tiny independent small farmers with traditional labour. Consequently, rubber becomes a large social commodity when more than 30 million small farms are at stake worldwide (Budiman 2002).
This book will focus on the natural rubber sector due to the importance of this industry to the world economy, and in particular to the Thai rubber industry, which is the world’s largest natural rubber producer. Thailand currently produces 4.47 million metric tonnes, nearly one-third of the total global output for 2015 (RRIT 2015). This industry is driving the growth of the Thai economy with revenue generated from rubber and rubber-related product exports valued in 2015 at 12,345 million USD (RRIT 2015). The Thai rubber industry is vital to Thai society, particularly in relation to employment, with approximately 6 million people working in its various sectors (TRA 2007). Social welfare has also greatly improved in Thailand due to the rubber industry’s economic contributions. The industry has been instrumental in Thailand’s growing economic competitiveness in the prospective world rubber market.
As rubber demand continues to rise, Thailand’s rubber plantation areas and manufacturers have grown significantly, resulting in more complexity and uncertainty in decision making. It can be observed that, despite the importance of the natural rubber industry, there are few studies of the industry’s supply chain, particularly with regard to the development of a decision support model. In order to gain a competitive advantage and to remain the world leader in rubber production, research is clearly needed to support decision-making capabilities which will allow effective management and enhancement of the supply chain. This book aims to fill the gap by developing a decision support system, particularly with regard to using a simulation tool to assist policy makers and entrepreneurs in their planning and decision making.
1.1 The Natural Rubber Industry
1.1.1 Natural Rubber Demand
Global demand for natural rubber was 12.4 million tons in the year 2015 and it is expected to increase to 14.2 million tons by the year 2020. Demand is expected to grow at an average increase of 3.7% per annum over the next 10 years.
Strong growth in the global automobile industry is expected to drive the worldwide rubber industry with particular demand for rubber from China, India, South Korea and regions in South America (TRA 2010). The tyre industry is the most dominant in terms of rubber consumption, accounting for approximately 70% of the total demand (SRI 2011). In addition, the rubber latex market accounts for 12% of total demand, with its main products being medical gloves . Demand from the latex market is expected to continue over the forecast period, due to the stringency of occupational health and safety regulations and the expansion of the ageing population in the USA, Europe and Japan. Other natural rubber products include shoe soles, with non-tyre automobile components making up the remaining 18% of total demand.
1.1.2 Natural Rubber Supply
Thailand is currently the world’s largest natural rubber producer with a worldwide market share of 33%. Indonesia, Vietnam, China and Malaysia rank from second to fifth. Thailand is expected to continue as the leading rubber producer, followed by Indonesia and Vietnam. Malaysia has lagged behind Vietnam and China since 2015.
1.1.3 Price of Natural Rubber
A number of factors affect the price movement of natural rubber, including future market activities, currency movements, weather, and supply and demand factors. However, the fundamental factors influencing rubber prices are supply and demand. The long-term price of rubber depends on technological and economic development, and in the medium-term, rubber price trends will depend on the cyclical effects of the world economy. Short-term factors such as weather, currency exchange rates and rubber trading mechanisms, and government intervention schemes are factors which drive a rise or a fall in rubber prices. However, there are additional fundamental and speculative factors with regard to supply and demand which will have a direct effect on the rubber price at all times (Budiman 2002).
1.1.4 The Thai Rubber Industry
Thailand is currently the world’s largest natural rubber producer, producing 4.47 million metric tonnes, nearly one-third of the total global output for the year 2015 (RRIT 2015). Rubber trees were first planted in Thailand in 1899. Rubber production and plantations were later promoted in the southern and eastern regions of the country, and then later further spread into the northeastern region. Since then, rubber plantation areas have multiplied throughout the country. In 2015, rubber plantation areas in Thailand covered a total of 19 million rais, or approximately 3 million hectares (OAE 2015). The vast majority of Thailand’s natural rubber is produced by smallholders, who account for almost 90% of rubber production.
1.2 Operations Research Techniques in Supply Chain Management
This book presents the construction and use of discrete event simulation (DES) models for the Thai rubber industry. Despite its specificity, the topic of the book may be extended to the more general topic of the use of tools for supply chain management. Simulation is but one tool in a comprehensive array of tools that belong to the operations research area. For the purposes of giving the reader an idea of the type of techniques that have been used in supply chain management, without going into too much detail, some examples in green supply chain management (GSCM) have been selected. These should enable motivated readers to continue their own research in this exciting area.
1.2.1 Simulation
The simulation technique creates a mathematical model to imitate the behaviour of a real-world process over time. It is used to provide a “what if” analysis of the operation of a system (Terzi and Cavalieri 2004). In supply chain management research, simulation is commonly used for scenario generation and analysis (Srivastava 2007).
An example of research using the simulation method developed for the industrial supply chain network may be found in Khoo et al. (2001). The authors created a simulation model to investigate the economic and environmental impact on the aluminium metal supply chain. The model was used to examine transportation pollution, marketing costs, time to market, recycling of scrap and energy conservation for different choices of location and modes of transportation in the entire supply chain of four production plants. The authors pointed out that to create a reliable and robust simulation system, the model developer has to focus on the accuracy of data, parameters and system behaviour.
Another research group using simulation methods in supply chain management is Teunter and Vlachos (2002). They developed a simulation model to investigate a hybrid production system with manufacturing and remanufacturing under the assumption that “the remanufacturing would be profitable if ther...