This sounds like an excellent addition.
I've got a couple of follow on comments/questions:
1. Like Ezhe, I'd definitely like to see the ability to commission repairs eventually.
2. How will quality be handled in the process?
One approach would be to always produce standard quality items, in which case the blacksmith would be a help to get started with the basics, but irrelevant once that level has been reached.
Another approach would be to give blacksmiths skill levels so they can produce items of up to a certain quality in each category (e.g. fine tools, decent swords. fine knives, decent axes), where you'd order the quality you want (or rather, can afford).
In this case the player would want to eventually hunt down the rich settlements where masterwork level smiths reside to compose their sets of masterwork items.
A third alternative, which I'd definitely recommend against, would be to have the blacksmith make a quality roll to see what you happened to get. I think that would be bad, as a craftsman with self respect would make new attempt until the result is satisfactory (and the price should reflect how much extra work it is to produce higher quality items).