From: Boston, Mass
Automatic supply doesn't depend on any actual transport capacity, the necessary transport is assumed and DOESN'T COST ANY FUEL; strategic supply is manual and may have cost associated with it. What does matter is that the supply chain be unbroken and each level of the chain be within the green of the previous level. Only map conditions affect supply delivery: terrain, weather( via terrain modifiers), distance and enemy ZOC's. Roads through any terrain are the path of least cost, terrain without roads costs more; mud/mountains are the worst. And the enemy can cut lines of supply, either completely or by obstructing the best path. Keep in mind that supply ONLY flows to SUBORDINATE formations. If city X sends its supply directly to HQ A, a common practice with combat units, which is subordinate to Supreme HQ, that supply does not help Supreme HQ, only the formations assigned as subordinate to HQ A.
Typically supply goes from a city to Supreme HQ, to the next HQs, then to their formations. In this case Supreme must be in the city's green zone, the next HQs must be in Spreme's green and the SF's must be in their respective HQ's green zone. Sometimes after significant movement the chain isn't so direct and one or more of the lines exceeds the 100% limits. Since ATG only computes supply from HQ's not the cities, you can use this tip (from another chain) to determine the city delivery zones:
Another tip to determine the supply coverage of a location since ATG seems to only display it properly for hq units: Create a bogus HQ (assuming you've got the points) at the origin location, production city or factory, then use the supply display (F5) to show its coverage. Then simply delete the HQ and you get the PP's back. Repeat as necessary. Do this at the beginning of your turn so you have the PP's, especially with the Officer HQ bug in effect.
Keep in mind that EACH city and HQ have a different supply zone and you must perform F5 (and subformation right click) for each one in order to see the delivery zone of each city and HQ and how the SF's will be supplied. This will let you see if enemy units are likely to disrupt supply or if units are completely cut off or out of range. Out of range units are essentially dead, since they cannot get supply and probably didn't get noticed until they were unable to move back towards the supply point (or away from the enemy). The only solutions are an airdrop if in range or to move the supply closer either by physical movement of the supply HQ or by building roads toward the unit. Large SF's are hard to air supply as only 50% of the supply reaches the formation. Sometimes only 1 or 2 hexes of road are enough to get enough supply to the SF to make it mobile enough to crawl home without additional assistance or cost. If they are in danger of being wiped out, the usual condition of out of supply units during combat, then you may need to spend more to save them. More road hexes, or a new (disposable) HQ unit that splits the (logical) distance from the supply HQ and the unit may be needed, with the unit being assigned to the new HQ just to facilate supply without regard to readiness, since that's going down fast anyway. Just getting the formation back may well be worth the cost and time to recover before its combat ready again.
All in All, out of supply is a VERY BAD thing.