A transition to a circular economy will imply new methods, accompanied by the introduction of sustainable materials and service-based functions into industries. However, effectively integrating bio-waste-based materials into modular product systems remains challenging due to trade-offs between cost, durability, and operational efficiency. An optimization version of the so-called Modular Product-Service Systems (MPSS) has been developed in the paper to replace the circular bio-waste materials so as to achieve the goal of the environmentally-sustainable operation and efficiency. It is stated that the modularity principles of products and prospects of regeneration of bio-waste resources facilitate the low value of lifecycle and environmental failure and high share of resource circularity, flexibility of the service, and reusability of components. Considering degradation rates, service schedules, and logistical capacities, a Mixed-Integer Linear Programming (MILP) model is designed to optimize the selection, allocation, and maintenance of bio-waste-based product modules. In an attempt to solve the conflicting goals, the framework incorporates both Life Cycle Assessment (LCA) and Multi-Criteria Decision-Making (MCDM) on the basis of the Technique of Order Preference by Similarity to Ideal Solution (TOPSIS). This form of integrated approach is capable of providing informed evaluation of trade-offs among economic, ecological and operational standards. The applicability of the model will be realized with aid of a case study in the modular furniture sector that lower the cost of furniture materials using farming bio-wastes without compromising on the furniture durability and functionality in terms of numbers of years of service. The case study results demonstrate that the proposed MPSS framework achieves superior financial returns (ROI 175%, breakeven by Year 6), extended service life (7.5 years), and higher circularity (65%) compared to benchmark methods, while balancing cost–carbon trade-offs through integrated LCA–MCDM evaluation. These outcomes confirm its effectiveness in delivering economically viable, environmentally sustainable, and operationally flexible solutions for circular product–service systems.