Plenty of places can make the Water Slide decal for you (like your local hobby shop).

I'd apply the decal, then send the playfield out for clear coat. Let the coating shop level the hole.

I've not done much of this myself, but for something that small everything I've read suggests that you absolutely do not want to go the decal route. The method you describe is more or less the gold standard (some use thin super glue or a spot clear coat or another varathane alternative, but the concept is the same.)

Unless this has been repaired with a decal before, that's not a decal you are touching up, it's original playfield art. It would be much harder to chip away the old art/clear and then perfectly align a decal, and you'd end up with a slightly raised area. You are on the right track.

Don't chip anything away.

Waterslide decals are thinner than tissue paper. As they dry, they conform to the surface exactly.

Cut the decal, using only the section you need for the damaged area.

If you send it out for clear coating, you will be set for life.

If you just spot clear over the decal, you should put down a Mylar circle to protect from future wear.