[<< wikibooks] People's Tactics/Production
Without production, no supply will be produced for your units, nor new troops and equipment. Each town automatically produces supply and sends it to its SHQ, as long as there is a land or sea (using 2 harbours) connection.
Next to this, you can set the production of a town, either to Political Points or to a specific unit type. Any units produced in the town will be delivered to your choice of SHQ (see production screen). The selected SHQ must be within a land supply line to the town, however, having a town sending production to an overseas SHQ will not work. The game will show a little red “N” in the bottom of the town hex to warn you if this situation might occur.
If a town has no reachable SHQ set, even using ports, it displays a little red “NP” in the bottom of the hex indicating that it cannot produce anything since it cannot deliver the production anywhere.
Not every people can produce every unit type depending upon the scenario you are playing.