I think in 2 ways
1.- Crafting only for champions.
2.- Crafting for champs and for units
This is, following the current distinction.
To make it simple, a certain tech would unlock a building that allows that city to produce crafted items for heroes and units.
For units.
Crafting an equipable item for units produced in that city.
The recipe: base item + magic spell.
Magic item Cost: base item + mana +/- crystal.
Wargs and horses might be enchanted too.
For champs.
The hero must stay in the city all the process, as he is going to take part in it. IF the hero leaves the city, the production stops, but can be retaken. When finished, the champ has the item in the inventory. If the city is attacked, the hero can defend it too. If city is lost, item and materials are lost too. I think that when the item is crafted, the champ receives a small amount of XP.
From here, you can add as many pre-req, options and updates as wish.
As an example, a Crafting Building can give a lot of strategy to wich city select, as it will give that city strong/special unit production.
Building updates might be unlocked by research, and can be tied to certain city level. These updates allow adding more spells/more powerfull versions. Updating the building might be a long process untill the most advanced stage.
A hero with "Crafting" skill could reduce time /cost of the production (I think in Crafting I, II...), at the same time that receives more XP when crafted.
Adding loot materials (skath, silk, all that) instead of a spell might supose a special effect too, as posted before. Crafting skill might improve the effect too.
Well, hope you liked these ideas 