The supplies produced by your factories can be carried by starship to new planets to be used to build new factories, mines and defense outposts. On a planet, you can also sell supply units for one MegaCredit each.
Supplies are also used to repair damaged ships. Five KT supplies will repair 1% of damage to a starship (automatically).
In addition, excess colonists on a planet or planetoid may consume supplies in order to survive in case of overpopulation.