That is the part i have a gripe with. Let me visualize it with some screenshots.It isn't related to moving closer or further away; it is related to spreading out. In reality this is the way the player uses the system. You don't stack everyone on one tile, you spread out, either over defensive lines or front lines.
Screenshot 1: The army of 264 000 men is standing on the supply hub. On top of the port, and is receiving 8,73 supplies / 20,37 requested = 43%
Screenshot 2: The army has spread around inland, into jungles and hills. And this has increased supply.
Screenshot 3/4: The distance traveled.
Moving the army hundreds of kilometers (in air distance) inland. Has alleviated the supply issue, which the army was suffering from. I find this very unintuitive.