The more supply I produce, the more supply I need.

[lambrf]

I believe it has to do with the amount of supplies that are available, as the troops will use up all available to them and then when they run out, there's a spike in demand... it should average out in the long-run, even if it looks unusual day-to-day or week-to-week.

Units were well supplied before I move the sliders. I had all convoys in green, since I manage them manually and still have enough transport available to put more than needed.
Thinking about that, it could be that the AI is increasing all the stockpiles because it has more supplies available. But again, demand would go down again after some time, which does not happen.

 

[KevinG]

I can confirm that this DOES happen. If nobody believes me to start a 36 GC as Canada. Disband all your units except for your starting 6 TPs. Over the next couple of years you will notice your supply demand go up ever so slightly even without building any units or trades. Since Canada is my favorite minor to play I play it often and I always disband everything at the start except for those TPs. I've seen this dozens of time so I KNOW it's real.

 

[unmerged(28592)]

I can confirm that this DOES happen. If nobody believes me to start a 36 GC as Canada. Disband all your units except for your starting 6 TPs. Over the next couple of years you will notice your supply demand go up ever so slightly even without building any units or trades. Since Canada is my favorite minor to play I play it often and I always disband everything at the start except for those TPs. I've seen this dozens of time so I KNOW it's real.

That seems to indicate that the supply demand is based on % of production.
It was some time since I played HOI 1, but recall the convoys worked more reliably there, the downside was of course that you needed more manual micro management, but miss the option of "convoy hopping", meaning you could set up a convoy from UK to island A, from island A to island B, and so on.