Re: up down counter
You need only one D-FF to detect the direction. You can use for example an CD4013 wired as a D-FF. (as in the drawing)
With one of the encoder pulses as a clock and a direction (from the FF) you can make a circuit to count up/down. If you want to control volume use a controller, connect the controller to a digital volume regulator (for example a digital potentiometer with SPI bus) and write some code.
You can offcourse make the FF with logic components like ORs and ANDs.
And also the volume regulator can be made with discrete components.
Can you make more clear what you want to build?