Abstract In this paper, we address this issue of a hybrid system where both used and new parts can serve as inputs in the production process to satisfy an uncertain market demand. The yield of the used parts is random. A firm needs to make production and procurement decisions in the face of this uncertainty. Three different cases are presented depending on the amount of information the firm has about the yield rate. We determine the optimal procurement and production quantity for the firm. Results of extensive numerical analyses have been presented including sensitivity analyses on various problem parameters.