I think this would work better in my idea for a Middle-Eastern/North African expansion with a different set of Biomes/Weather/Resources/Buildings for a very different game experience in this same base game, but this is more about an interesting way for Sheep to work.
Instead of being livestock, there could be Spawn Points for Sheep like Deer. You build a Shepherd’s hut which has a moveable work area and 2 worker slots (1 Shepherd per spawn).
Shepherds tend to their sheep, guide them around the area for better grass to eat, collect Wool from adult Sheep, and slaughter spawns that exceed the normal limit (they enable a Sheep Spawn to spawn in additional Sheep as Lambs at a faster rate). With Tools they can collect Wool and have a big attack bonus against Wildlife. In a sense, it parallels the Hunters Cabin.
The building can then be upgraded with an extra worker slot who spawns extra Lambs within the building (a bit like how the upgraded Forager Hut works) and slaughters them. This parallels the upgraded Hunting Cabin’s Traps.
If going with the Middle-East/North Africa Pack idea, the Wool could be the source of raw material to be processed into Clothing (making it less of a parallel to how the raw material for Clothing is created in the current European setup).