Without adequate supply your units cannot recover readiness. Without adequate supply, or with no supply at all, your units will lose readiness, even when doing nothing. It is vital for your military to have and maintain good lines of supply.
People's Tactics supply type icons image
Basically, a hex can be supplied in one of three different ways. The first, and easiest to maintain, is through a traceable land route. Secondly, through a traceable land and sea route in which case both a sending port and receiving port are under your control. The third method is through a traceable land and sea route but with only a sending port under your control. This method is known as “amphibious supply” and it carries a 50% penalty due to the difficulty of the medium
The line of supply is traced from a formation to their SHQ. If you have multiple SHQs, there will be multiple lines of supply. A formation uses the SHQ of its THQ for supply.
If there is not enough supply available in the SHQ to supply all its formations it will send partial supply to all.
A SHQ can save up to a certain amount of unspent supply. This can be used in the future or used for air supplying units.
A SHQ has a certain maximum limit to where it can supply formations. Formations further than half this limit away get penalties. If they are out of limit they will get no supply and their counter will turn orange as a warning for the player.
Keep in mind that units that do nothing will use almost no supply, while units that move and battle a lot will use lots more of supply.
Keeping your formations too far away from their respective THQs will result in supply loss.
Use the hex info button in the status report to get detailed info on how a hex is supplied. Especially if you have multiple SHQ this could be interesting and affect your strategy.