Aged products spillover effect and the value of holding inventory under stochastic demand: the case of Port wine

In this study, we address the inventory decision problem of ameliorating goods by explicitly incorporating a demand spillover effect between product categories – an interaction that has received little attention in operations management. We first empirically demonstrate the existence of this spillover using multi-year sales data from 11 Port wine brands across 86 markets. Building on these insights, we integrate the spillover effect into a stochastic inventory decision model for a (Port) wine seller who must decide whether to sell existing inventory or continue aging it to offer higher-quality products in the future. The problem is formulated as a Markov Decision Process and solved using a forecast-based Deterministic Lookahead (DLA) approach and a Proximal Policy Optimization (PPO) algorithm. Our results show that accounting for the spillover effect can increase profits by up to 1.31%, and that both proposed solution methods outperform the myopic strategy currently applied by producers. While the DLA policy performs best under high forecast accuracy, the PPO algorithm proves more robust when uncertainty is high. The study contributes to bridging marketing and operations perspectives by quantifying the economic impact of spillover effects and providing decision-support tools for managing aged inventory under demand uncertainty.