Iterate on an LLM, Serve on an SLM

Abstract:As frontier LLMs gain more capabilities, the cost to run them also goes up. At the same time, small language models (SLMs) also gain more capabilities but have largely been able to keep their cost stable, offering 5-40 times cheaper inference for the narrow, repetitive subtasks that agents decompose work into. However, the standing limiting factor is getting the correct behavior out of a small model in a fast, efficient, and economical way. Unfortunately, in most cases, zero-shot small models fail narrow production tasks. Furthermore, retraining one every time the behavior changes is too slow to iterate on. We propose doing both in sequence. First, develop the desired behavior in prompt space, on a frontier model, with immediate feedback from live traffic. Then, once the behavior converges, distill the recorded production behavior (not synthetic imitations of it) into an SLM through supervised fine-tuning (SFT). We show a proper use case of this method through a scheduling agent for home-care agencies that fans out a single yes/no safety decision per caregiver-shift pair on GPT-5.4-nano. A LoRA-tuned Qwen3-8B trained on 11.6k recorded production decisions reaches 0.913 agreement, while the teacher (GPT-5.4-nano), re-run on its own recorded prompts, agrees with itself only 72.7% of the time, pointing to the fact that the SLM may also be more consistent. Furthermore, when the two disagreed, a blinded professional scheduler sided with the student 48-29. Finally, we find that the SLM has approximately 2.5 times lower median latency and is a fraction of the cost. We believe this lifecycle of quick building, live feedback, and cheap inference is a blueprint for others building similar systems.

Artificial Intelligence (cs.AI); Multiagent Systems (cs.MA)

arXiv:2610.14576 [cs.AI]

(or arXiv:2610.14576v1 [cs.AI] for this version)

https://doi.org/10.48550/arXiv.2610.14576 Focus to learn more arXiv-issued DOI via DataCite (pending registration)

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