Hello, my name isXXXXX and I have over 20 years of experience as a veterinarian.
I am sorry to hear that Holly is licking her bottom and tailhead enough to make herself raw.
She may be trying to lick her perianal area after eating in response to a food allergy which can cause perianal itchiness.
Other reasons for perianal itchiness include constipation or diarrhea, fleas, tapeworms or other gastrointestinal parasites, full or infected anal glands or impaction of the glands.
Because she is a shepherd mix I also want to mention a condition called perianal fistulas as we see this more commonly in shepherds and their mixes. This is a painful condition where dogs develop fistulous tracts around the anus and lick in response to the discomfort. It is likely an autoimmune mediated disease process (body attacks itself) as it responds to immunosuppressive drugs and while it cannot be cured we can usually control it. It is diagnosed via a biopsy coupled with a history of perianal inflammation and tracts.
Make sure that her stools are normal size and consistency and look for any signs of worm packets that look like grains of rice too. If she's had fleas at all in the past year then tapeworms are a real concern and then you may choose to treat for those with a wormer containing praziquantal. I would also recommend submitting a stool sample to check for other gastrointestinal parasites. If she has had fleas even if you don't see them now I do recommend using protection, if only during the spring, summer and fall months. They are the most common allergen and it only takes one bite a month to make an allergic dog lick and scratch excessively so I recommend using flea prevention even if you never see one again. Frontline Plus, Advantage or Advantix are excellent. Don't use over the counter products, especially Hartz or
Sargents, as most are ineffective if not toxic.
She should have her anal glands checked either by your veterinarian or an experienced veterinary technician to make sure they aren't a problem.
If she will let you she may benefit from a warm compress to the area, patting dry and then applying a light coat of cortisone cream (like cortaid) to the area a couple times a day.
If she's been fed a new food or treats, or had table food my thought would be this is a food allergy. Treatment is topical cortisone and not exposing her to the allergen again. It can take a few weeks to get the allergen out of his system. If this has been going on a while perhaps she is allergic to her food and I recommend a hypoallergenic diet trial. You could try a true hypoallergenic diet like Hills z/d or Purina Veterinary Diets HA. No treats, flavored medication or bones while on the diet and it must be used for a least 12 to 16 weeks to see the full effects, though most owners see some improvement in 6 to 8 weeks.
Finally if she is having trouble passing stools then adding 1 to 2 tablespoons of pumpkin (not pie filling, just canned pumpkin) to each meal will help soften her stools and make them easier to pass and thus make her more comfortable.
Best of luck with your girl, please let me know if you have any further questions.