A survey was conducted in three selected kebeles of Kombolcha Regiopolitan City in South Wollo Zone. The selected kebeles were in proximity to brewery factory, Ethiopia. A semi-structured questionnaire was used to collect perception data from purposively selected three kebeles and a total of 57 randomly selected dairy farmers. Data collected  were analyzed with a statistical package for social sciences (Version 20) and Microsoft Excel (2010). Smallholder dairy farmers had average herd size of 10.7 and 0.08 hectare total dairy farm per household. Average daily milk yield and lactation length of dairy cows was 10.8 liter/day and 9.5 months, respectively. The majority of farmers (59.6%) reared dairy cows with 50-75% exotic blood. The most smallholder dairy farmers satisfied their feed demand from the market and had a trend of providing both dense and poor quality affordable feed ingredients. Smallholder dairy farmers gave priority to feed different kind of cattle in the order of lactating cows, calve, pregnant, heifers and dry cows and used (100%) wet brewery spent grain as a source of dairy feed. Though, there was a brewery by-product supply deficit for  half of year. The majority smallholder dairy farmers delivered brewery by-product directly from the brewery factories and followed by wholesalers and retailers. The majority of smallholder dairy farmers (96.4%) stated that the brewery spent grain was fed and stored freshly using different conservation techniques, and the remaining stored in ensiled (1.8%) and dried (1.8%) forms. Smallholder dairy farmers had no brewery spent grain ensiling practice and feeding brewery yeast to dairy animals. Smallholder dairy farmers indicated that high price due to abnormal market chain and shortage of brewery spent grain supply were the major challenges to sustain dairy industry in the study area, and the majority (40.6%) claimed to get swift solutions at high cost and less accessible brewery by-product.