In recent years, global supply chains (SCs) have envisioned redesigning their sourcing, production, and distribution processes due to sustainable production and consumption progression. This has led to the concept of a zero-waste circular economy (CE), which is gaining increasing attention in both developed and emerging economies. The textile industry, in particular, has a significant environmental impact due to the use of toxic chemicals and the production of toxic waste throughout the clothing value chain. While the textile industry in emerging economies is increasingly attempting to transition to a CE model by implementing Smart Waste Management Systems (SWMS), challenges persist due to the complex industry structure involving numerous stakeholders, changing consumer behavior, and lack of strong standards. To address this significant issue, this study addresses challenges faced by the textile industry in adopting SWMS, specifically in the context of an emerging economy. To systematically identify the significant challenges and analyze strategies to address these challenges, a research framework using a hybrid approach, namely the grey Analytical Network Process (ANP), has been developed. The study uses a case study of the textile industry in Bangladesh to validate the effectiveness of the framework. The findings suggest efficient monitoring and control of waste recovery is the most critical step in adopting SWMS. This study offers detailed and comparative insights into the framework of implementing SWMS in the textile industry. Additionally, this research is the first to undertake an analytical decision approach to map challenges and strategies in implementing SWMS. The study outcomes will be beneficial for industry practitioners to ensure efficient monitoring and control of waste recovery and help the industry move towards a sustainable CE.