It's a novel idea! I never call an idea silly, because often the "silly" ideas serve as the basis for other ideas.
Two issues I see with your proposed system:
1) You would be making the repair material a non-stacking item. I think this would further kill a lot of peoples inventories. Requiring three inventory slots worth of items (i.e. 3 NQ bows) to perform one repair might result in some foaming at the mouth.
2) These bows would STILL be created faster than used for repairing. To balance the supply / consumption, I think that items would have to degrade much more quickly then they do now -- and SE already (a) reduced durability drop rate (b) changed damaged % to 35% from 50%.
This is the same reason why having items degrade and be destroyed to remove them from the game won't work. Items just can't degrade fast enough to balance the supply. One crafter can easily turn out 6 bows in one hour (counting time spent making subcomponents). To balance this, 6 bows would have to degrade to the point of breaking in that same hour. I think this would cause people to riot in the streets
Ultimately, some other form of excess item removal has to be introduced. Currently the options are (a) destroy (b) sell to NPC.
Realistic (to my mind) options that I've seen floated include (a) de-synthesis (b) using items to create materia.
De-synthesis creates another source of materials flowing into the system, and so would have to be balanced against gathering and combat drops, making it tricker.
My current best hope is for Materia-creation. Something along the lines of:
Item A + Item B + ... + Item X + Gathered Catalyst ~> Materia
Could use multiple of the same item, of various combinations of items. Depending on the items used, the type of Materia created is different.
Even this system will saturate eventually, once all the Materia that people want has been created, unless there is a form of consumable materia, thus creating continual demand for new Materia. Perhaps special-ability Materia like a summon spell is consumed upon use, while other forms aren't, or something along those lines.