@cernel Having factories in every territory essentially eliminates logistics. The need to wait for your reinforcements to reach the front creates a de facto logistics limitation. This is an important part of the game.
Factories also provide an important and interesting intermediate level target. The decision to build a factory becomes an important strategic decision.
As for realism, centralized factories are even more realistic in the medieval period. Consider how the need to march armies from southern England to Scotland made the conquest of Scotland difficult for the English. Even in the 16th century, the Ottoman empire had to assemble its forces in Edirne for its campaigns against Austria, resulting in a short campaign season and Austrian victory. Only the most sophisticated pre-industrial states could assemble large armies at a location other than a capital.
So I think from both realism and game interest, expensive factories add to the game. Note that the Russian Civil War was full of major offensives that collapsed partially because of logistical problems.