An order-level inventory model is considered with two levels of storage for deteriorating items. When stock level exceeds the capacity of own warehouse (OW), it is to be kept in additional rented warehouse (RW) with higher holding cost than OW. The inventory held in RW is transferred to OW in bulk size (K) where, K is less than the capacity of OW till the stock in RW gets exhausted and there is an associated transportation cost. In developing the model it is assumed that the demand is time-dependent and shortages are allowed. © Operational Research Society of India.