I like the idea, but there are two things missing:
1) Armor Smithing.
2) Bow/Crossbow-Crafting and Ammunition creation.
3) As the system is now, there isn't really an incentive for me to use the Smithing System. In theory, I could make weapons (and hopefully sometime armor) for myself, that I can't buy in a particular town, however, the reality is, that there is tons of equipment available in towns. If I don't get that top notch e.g. Battanian Ranger and Noble Equipment in a town but I find another, cheaper piece of armor, 2nd grade top notch, that is an improvement, I just buy that or/and travel to another town and try my luck there.
The same of cause is true for weapons.
There isn't really a need to use Smithing at all. There are imho ways to improve this:
-Make Equipment harder to get in towns of factions, atleast when they're at war (since then you get the explanation, that most of the equipment is bought by the armies at war).
-I know that, atleast to the description of certain smithing perks, that there are "legendary" weapons. I never used Smithing to a degree, that I ever came close to leveling smithing past the first perk and thus I never saw these legendary weapons. Are we talking about a difference like that a "legendary" sword has a stat increase of +1 to everything? That wouldn't be really "legendary", if it would be +10 to everything, that may be more warranted to call it "legendary". Give players the idea, that legendary weapons, at some point armor and bows/crossbows, are worth pursuing, worth the grind of going through all the smithing.
-Make us able to choose, what part we want to unlock next, I guess no blacksmith, who wanted/wants to improve his smithing skills, would rely solely on flashes of inspiration, they would train themselves to make a certain part better and better.
This mustn't exclude the whole "flash of inspiration"-RNG-System at all, it can be coupled. Let us choose, what part we want to research and if we finish the research by crafting items of that category, there may be a (lower as now) chance to additionally unlock a random part.
-If equipment is "legendary", it ought to be inherited through dynasties. However, as I've seen in videos, when your character dies of old age (only way to die as of now except getting executed), you get a list of characters from which you can select one to play with and then you start totally anew. Imho the equipment carried by the dead character before you, if he didn't die in battle that is, should be fully transferred to the heirs, for you as player with an heir as character being able to select from a few of the items, the others going to other heirs. If the character dies in battle, it is plausible, that soldiers looted the corpse and that some of the items carried are lost to the heirs, even legendary items.
That even could be coupled with inheritance laws (comparable to those of the Crusader Kings-Franchise).
-Equipment created by smiths ought to be worth something, as of now you'll regulary see that the ingredients you bought were worth more in their raw state than their manufacted state, when you used them to make weapons. This would turn smithing into a reliable income source, coupled with perks like "Appraiser" from the Trader Tree it would make perks related to increasing sell prices of equipment actually worthwhile (In general some perks are so utterly unattractive - e.g. +5 Security vs. Disciplinarian ability to convert bandits to regular and noble troops - that you'd never ever pick these).
-If you gift something very valuable to lords, e.g. an atleast high-tier piece of armor or a huge sum of gold etc, you should get a relation ship improvement with these lords and their clans. This would make Smithing usable to atleast a degree in diplomatic affairs.
-There isn't THE art of smithing. IRL Japanese Smiths did things differently than western european Smiths (hence Katanas weren't really a thing in Europe).
This should be reflected in the game, that, additionally to categories like "Two-Handed Swords" these categories in themselves are divided into different "cultures", so you wouldn't find sabers, that are more typical for the Aserai, in the Vlandia Section.
You're character has by standard unlocked the smithing culture of his own culture, so if you start as Vlandian, you know the very low basics of making Vlandian Equipment and at some point you should be able to research other cultures and thus be able to unlock their equipment.
This could be even be useful in trading. No one would bat an eye about a saber in Quyaz. In Varcheg on the other hand? Pretty exotic, it should fetch higher prices there.
How in detail these other cultures are unlocked, I leave that to the imagination of the devs, I could imagine myself a system via quests unlocked from a certain smithing skill onward, so if you enter e.g. a vlandian city as battanian character and talk with the black smith in that town (would give an incentive to walk in the streets more too), he could give you a starting quest for a quest chain to research or unlock the Vlandian Category.
It could be something simple like "I'm an old smith, I need a helping hand and I got knowledge, make me 30 swords and I teach you the basics of <Insert Cultural Adjective> Smithing" or it could be something more elaborate, like having to smelt a certain number of items, e.g. 20 pieces of mountain bandit equipment (whatever that may be), having to talk with a certain smithing master renowned in that cultural area, doing tasks like that the smith's daughter was kidnapped by bandits and is in a bandit lair and so on.
Or as simple like that you select the culture to unlock and just have to do more smithing to unlock it than for "regular" parts of your own culture to unlock it.
Or a combination of both, an "In-UI"-System to unlock cultures, but doing the quests may be more worthwile or faster.
This is a spontanious list of ideas I came up with to improve smithing.