AI-Driven Circular Manufacturing Framework for Predictive Material Flow Optimisation

• Develops an AI-driven Digital Twin framework for predictive material-flow optimisation in circular manufacturing. • Integrates Discrete Event Simulation and Machine Learning for scrap prediction and process optimisation. • Demonstrates improved material utilisation with explainable prediction using XGBoost and SHAP analysis. • Provides a reproducible framework aligned with quality management standards. • Establishes a foundation for self-optimising circular manufacturing systems. The move towards circular manufacturing needs the implementation of intelligent systems that can minimize material waste and optimize manufacturing efficiency using predictive and adaptive control. In this paper, an AI-based Digital Twin approach for predictive material flow optimization in sheet-cutting operations is presented, providing a basis for future prescriptive decision support. A Discrete Event Simulation (DES) model was created in MATLAB SimEvents to simulate a sheet-cutting cell, producing process-level data for forty simulation runs (100 parts per simulation run) with part areas between 1. 20 and 9. 41 m² (average = 4. 22 m², std dev = 2. 27 m²). Analysis of material flow behaviour showed an average material utilization of 81. 15% and corresponding average scrap amount of 18. 85%, with 41. 0% of parts needing rotation to fit. Three machine learning models, namely XGBoost, Random Forest, and Neural Network, were trained on the DES data using five-fold time-series cross-validation for predicting scrap amount. XGBoost showed better prediction accuracy (mean R² = 0. 73, RMSE = 2. 35, MAE = 1. 74) than Random Forest (R² = 0. 65, RMSE = 2. 70, MAE = 1. 98) and Neural Network (R² = 0. 44, RMSE = 3. 27, MAE = 2. 76). SHAP analysis showed that the real-time sheet-level variables usedₒnₛheet and remainingₒnₛheet are the most influential in scrap prediction, and dependence analysis highlighted non-linear relationships such as the inverted-U shape for cumulative used area. Feature interaction analysis confirmed the most important interaction between utilₚercent and usedₒnₛheet (0. 1423), thus proving that the risk of scrap is a function of the joint operational intensity and material state. The approach shows a strong alignment with IATF 16949 and ISO 9001 quality management system standards.