In this paper, we present a direct method for solving linear systems of a block-Toeplitz matrix with each block being a near-circulant matrix. The direct method is based oil the fast Fourier transform (FFT) and the Sherman-Morrison-Woodbury formula. We give a cost analysis for the proposed method. The method is then applied to solve the steady-state probability distribution of a hybrid manufacturing system which consists of a manufacturing process and a re-manufacturing process. Copyright (c) 2005 John Wiley & Soils, Ltd.