Recent advancements in generative AI have accelerated the discovery of novel chemicals and materials; however, transitioning these discoveries to industrial-scale production remains a critical bottleneck, as it requires the development of entirely new chemical manufacturing processes. Current AI methods cannot auto-generate PFDs or PIDs, despite their critical role in scaling chemical processes, while adhering to engineering constraints. We present a closed loop, physics aware framework for the automated generation of industrially viable PFDs and PIDs. The framework integrates domain specialized small scale language models (SLMs) (trained for chemical process QA tasks) with first principles simulation, leveraging three key components: (1) a hierarchical knowledge graph of process flow and instrumentation descriptions for 1,020+ chemicals, (2) a multi-stage training pipeline that fine tunes domain specialized SLMs on synthetic datasets via Supervised Fine-Tuning (SFT), Direct Preference Optimization (DPO), and Retrieval-Augmented Instruction Tuning (RAIT), and (3) DWSIM based simulator in the loop validation to ensure feasibility. To improve both runtime efficiency and model compactness, the framework incorporates advanced inference time optimizations including FlashAttention, Lookahead Decoding, PagedAttention with KV-cache quantization, and Test Time Inference Scaling and independently applies structural pruning techniques (width and depth) guided by importance heuristics to reduce model size with minimal accuracy loss. Experiments demonstrate that the framework generates simulator-validated process descriptions with high fidelity, outperforms baseline methods in correctness, and generalizes to unseen chemicals. By bridging AI-driven design with industrial-scale feasibility, this work significantly reduces R&D timelines from lab discovery to plant deployment.