# Small Language Models for Efficient Agentic Tool Calling: Outperforming Large Models with Targeted Fine-tuning

arXiv: https://arxiv.org/abs/2512.15943 · HTML: https://mlsanity.com/paper/2512.15943/

## Key facts

- Cited by 7 papers in the map (data through 14 Oct 2026).
- Placed in General LLM agent frameworks and benchmarks, one of 16 directions in LLM agents and tool use.
- Builds on 16 of its 25 references that are in the map.
- First posted on arXiv 17 Dec 2025.

## Placed in

- LLM agents and tool use / [General LLM agent frameworks and benchmarks](https://mlsanity.com/agents/general-llm-agent-frameworks-and-benchmarks/)

## Builds on (most cited first, 16 of 16)

- [Training language models to follow instructions with human feedback](https://mlsanity.com/paper/2203.02155/) (2022)
- [LLaMA: Open and Efficient Foundation Language Models](https://mlsanity.com/paper/2302.13971/) (2023)
- [Distilling the Knowledge in a Neural Network](https://mlsanity.com/paper/1503.02531/) (2015)
- [ReAct: Synergizing Reasoning and Acting in Language Models](https://mlsanity.com/paper/2210.03629/) (2022)
- [BERTScore: Evaluating Text Generation with BERT](https://mlsanity.com/paper/1904.09675/) (2019)
- [DistilBERT, a distilled version of BERT: smaller, faster, cheaper and lighter](https://mlsanity.com/paper/1910.01108/) (2019)
- [Toolformer: Language Models Can Teach Themselves to Use Tools](https://mlsanity.com/paper/2302.04761/) (2023)
- [HotpotQA: A Dataset for Diverse, Explainable Multi-hop Question Answering](https://mlsanity.com/paper/1809.09600/) (2018)
- [BioBERT: a pre-trained biomedical language representation model for biomedical text mining](https://mlsanity.com/paper/1901.08746/) (2019)
- [ToolLLM: Facilitating Large Language Models to Master 16000+ Real-world APIs](https://mlsanity.com/paper/2307.16789/) (2023)
- [Gorilla: Large Language Model Connected with Massive APIs](https://mlsanity.com/paper/2305.15334/) (2023)
- [AgentBench: Evaluating LLMs as Agents](https://mlsanity.com/paper/2308.03688/) (2023)
- [LIMA: Less Is More for Alignment](https://mlsanity.com/paper/2305.11206/) (2023)
- [A Primer in BERTology: What we know about how BERT works](https://mlsanity.com/paper/2002.12327/) (2020)
- [Smaller Language Models are capable of selecting Instruction-Tuning Training Data for Larger Language Models](https://mlsanity.com/paper/2402.10430/) (2024)
- [Scaling Down to Scale Up: A Cost-Benefit Analysis of Replacing OpenAI's LLM with Open Source SLMs in Production](https://mlsanity.com/paper/2312.14972/) (2023)

## Built on by (most cited first, 7 of 7)

- [FAMA: Failure-Aware Meta-Agentic Framework for Open-Source LLMs in Interactive Tool Use Environments](https://mlsanity.com/paper/2604.25135/) (2026)
- [The Path to Self-Evolving Clinical Systems: Scaling Medical Agents from Assistance to Autonomy](https://mlsanity.com/paper/2607.11175/) (2026)
- [When Cloud Agents Meet Device Agents: Lessons from Hybrid Multi-Agent Systems](https://mlsanity.com/paper/2605.30102/) (2026)
- [Decoupled Smart Contract Audits: Lightweight LLM Framework via Distillation and Aggregation](https://mlsanity.com/paper/2606.03128/) (2026)
- [Small Reasoning Models are Instruction Followers in Function Calling](https://mlsanity.com/paper/2608.22472/) (2026)
- [Beyond Fluent Generation: A CPU Reliability Benchmark for MCP-Style Tool Calling in Sub-2B Small Language Models for Edge Deployment](https://mlsanity.com/paper/2609.07370/) (2026)
- [MetroLLM-Bench: Evaluating Language Models as Transit Kiosk Runtimes](https://mlsanity.com/paper/2609.10016/) (2026)

## Abstract (arXiv)

As organizations scale adoption of generative AI, model cost optimization and operational efficiency have emerged as critical factors determining sustainability and accessibility. While Large Language Models (LLMs) demonstrate impressive capabilities across diverse tasks, their extensive computational requirements make them cost-prohibitive for routine enterprise use. This limitation motivates the exploration of Small Language Models (SLMs), which can deliver comparable performance in targeted applications while drastically reducing infrastructure overhead (Irugalbandara et al., 2023). In this work, we investigate the feasibility of replacing LLM-driven workflows with optimized SLMs. We trained a domain-adapted SLM to execute representative tasks traditionally handled by LLMs, such as document summarization, query answering, and structured data interpretation. As part of the experiment, we investigated the fine-tuning of facebook/opt-350m model (single epoch only) using the Hugging Face TRL (Transformer Reinforcement Learning), specifically the Supervised Fine-Tuning (SFT) trainer. The OPT-350M model was released by Meta AI in 2022 as part of the OPT (Open Pretrained Transformer) family of models. Similar studies demonstrate that even models at the 350M parameter scale can meaningfully contribute to instruction-tuning pipelines (Mekala et al., 2024). Experimental results demonstrated that our fine-tuned SLM achieves exceptional performance with a 77.55% pass rate on ToolBench evaluation, significantly outperforming all baseline models including ChatGPT-CoT (26.00%), ToolLLaMA-DFS (30.18%), and ToolLLaMA-CoT (16.27%). These findings emphasize that thoughtful design and targeted training of SLMs can significantly lower barriers to adoption, enabling cost-effective, large-scale integration of generative AI into production systems.