<p>In response to the persistent impacts of exponential industrial expansion and energy consumption, urgent action is required to mitigate detrimental processes and safeguard the environment’s sustainability. This needs a commitment from enterprises toward ecologically friendly practices, supporting vibrant communities, and guaranteeing sustainable growth prospects. Thus, the present study presents a strategic framework that aims to promote sustainability in a closed-loop supply chain, with a specific emphasis on the mutually beneficial association between manufacturer and collector. Addressing the detrimental environmental implications associated with gasoline-powered machinery, the study proposes an integration of a flexible production system with fuel-based machinery. Under this paradigm, the production mechanism is intrinsically defective, needing a careful inspection procedure to differentiate between imperfect and perfect items. As the demand relies entirely on perfect items, defective items are sold at a discounted rate to the collector, establishing a closed-cycle system. Furthering environmental conservation efforts, collectors invest in targeted awareness campaigns to encourage customers to return used items and offer incentives for involvement. Post-collection, used and defective items undergo a secondary inspection to identify them as recoverable or disposable. Recoverable products are sold to manufacturers at a new price for remanufacturing, while disposable items are turned into energy, offering a zero-waste solution for items contributing to environmental deterioration. The numerical examples (centralized and decentralized scenario) and sensitivity analysis are conducted to demonstrate the model's robustness. Based on the research findings, it is suggested that using flex-fuel machinery is both a cost-effective and ecologically responsible alternative to gasoline-based equipment, outperforming them by 6.66% in terms of economic efficiency and 58.18% in terms of environmental impact. From the comparative analysis, it is observed that flex-fuel machinery increases profit by 7.14% while reducing emissions by 36.78%, whereas energy conversion boosts profit by 24.73% and cuts carbon emissions by 9.08%. In conclusion, the proposed study presents a complete framework for increasing sustainability in closed-loop supply chains, combining flex-fuel-based manufacturing, circular economy concepts, waste-to-energy conversion, and the 3R (reduce, reuse, recycle) paradigm. This strategy methodically tackles defects in manufacturing processes, eliminates waste, and creates a harmonic interplay between makers, collectors, and consumers, assuring the enduring sustainability of the supply chain ecosystem.</p> Graphical abstract <p></p>