I think the suppy model is fine .. I think where the problems occur is our usage of it.
If you have a large force concentrated in one area .. then each division is going to send a supply request to the local depot (capital, closest naval base or supply dump) .. when the request is received, the supplies get sent out (by the optimal route) day by day and travel one province per day to fulfil the request.
Because you have a large concentrated force - the route taken for the supply is going to more or less take the same route for all divisions (diverging only near the final destination) .. hence, bottlenecks will occur in the chain. (hence why you see a line of green provinces heading towards the force and then diverging when it gets closer).
It doesn't matter if your 200km inside France or 1500km inside Russia .. if the bottleneck is at the French border or in and around Warsaw your going to lack supplies at the front.
When the bottlenecks occur - it looks like the AI tries to work out alternative routes for some divisions .. Remember, its looking for the quickest / most optimal route .. if that is through 6 consequative "Plains" provinces, snaking their way through mountains on either side - its going to funnel all the supply, for all divisions in your concentrated area, through those 6 provinces. This might be the quickest route - but eventually, the amount of traffic passing through those 6 provinces will cause bottlenecks (due to throughput).
Then, weather will have an impact. Lots of rain / snow on the optimal route will cause further bottlenecks when trucks get bogged down .. sadly, you can't do much about the weather ..
So where is the problem?
I say its in the concentration of force.
East Prussia - with Germany - is a perfect example. I tend to put way too many divisions in there pre-Poland .. and bit by bit, I start to see them struggling for supplies. I have too many divisions in there to be able to supply at 100%. As soon as I start to remove divisions - the supply problems fix themselves.
I've not done this so don't know for certain - but start a 1936 game with Germany and send all your divisions to a province 4 steps from Berlin .. I imagine you'll get supply problems .. It doesn't matter how close if the amount of divisions is too large in one area .. the route to where they are will get overwhelmed.
As an example with Italy and Africa (where I had serious supply problems when I played that game) .. Its not a case of how many divisions you would WANT or LIKE on the continent - its about how many you NEED and can SUPPLY. Once you go over the limit of what you can support - then you'll get supply problems.
When this happens you can either :
a) Carry on and accept your going to get supply problems and plan for it ..
or
b) Take the hint - you've got too much force here than what can be adaquetly supplied - and ship some back to the main land.
On fronts - don't concentrate large forces .. spread them out a little bit to open up different supply routes to not cause bottlenecks 300km behind the lines ..