Advanced Function Calling and Multi-Agent Systems with Small Language Models in Foundry Local
Advanced Function Calling and Multi-Agent Systems with Small Language Models in Foundry Local In our previous exploration of function calling with Small Language Models, we demonstrated how to enable local SLMs to interact with external tools using a text-parsing approach with regex patterns. While that method worked, it required manual extraction of function calls from the model's output; functional but fragile. Today, I'm excited to show you something far more powerful: Foundry Local now supports native OpenAI-compatible function calling with select models. This update transforms how we build agentic AI systems locally, making it remarkably straightforward to create sophisticated multi-agent architectures that rival cloud-based solutions. What once required careful prompt engineering and brittle parsing now works seamlessly through standardized API calls. We'll build a complete multi-agent quiz application that demonstrates both the elegance of modern function calling and the power of coordinated agent systems. The full source code is available in this GitHub repository, but rather than walking through every line of code, we'll focus on how the pieces work together and what you'll see when you run it. What's New: Native Function Calling in Foundry Local As we explored in our guide to running Phi-4 locally with Foundry Local, we ran powerful language models on our local machine. The latest version now support native function calling for models specifically trained with this capability. The key difference is architectural. In our weather assistant example, we manually parsed JSON strings from the model's text output using regex patterns and frankly speaking, meticulously testing and tweaking the system prompt for the umpteenth time 🙄. Now, when you provide tool definitions to supported models, they return structured tool_calls objects that you can directly execute. Currently, this native function calling capability is available for the Qwen 2.5 family of models in Foundry Local. For this tutorial, we're using the 7B variant, which strikes a great balance between capability and resource requirements. Quick Setup Getting started requires just a few steps. First, ensure you have Foundry Local installed. On Windows, use winget install Microsoft.FoundryLocal , and on macOS, use bash brew install microsoft/foundrylocal/foundrylocal You'll need version 0.8.117 or later. Install the Python dependencies in the requirements file, then start your model. The first run will download approximately 4GB: foundry model run qwen2.5-7b-instruct-cuda-gpu If you don't have a compatible GPU, use the CPU version instead, or you can specify any other Qwen 2.5 variant that suits your hardware. I have set a DEFAULT_MODEL_ALIAS variable you can modify to use different models in utils/foundry_client.py file. Keep this terminal window open. The model needs to stay running while you develop and test your application. Understanding the Architecture Before we dive into running the application, let's understand what we're building. Our quiz system follows a multi-agent architecture where specialized agents handle distinct responsibilities, coordinated by a central orchestrator. The flow works like this: when you ask the system to generate a quiz about photosynthesis, the orchestrator agent receives your message, understands your intent, and decides which tool to invoke. It doesn't try to generate the quiz itself, instead, it calls a tool that creates a specialist QuizGeneratorAgent focused solely on producing well-structured quiz questions. Then there's another agent, reviewAgent, that reviews the quiz with you. The project structure reflects this architecture: quiz_app/ ├── agents/ # Base agent + specialist agents ├── tools/ # Tool functions the orchestrator can call ├── utils/ # Foundry client connection ├── data/ ├── quizzes/ # Generated quiz JSON files │── responses/ # User response JSON files └── main.py # Application entry point The orchestrator coordinates three main tools: generate_new_quiz, launch_quiz_interface, and review_quiz_interface. Each tool either creates a specialist agent or launches an interactive interface (Gradio), handling the complexity so the orchestrator can focus on routing and coordination. How Native Function Calling Works When you initialize the orchestrator agent in main.py, you provide two things: tool schemas that describe your functions to the model, and a mapping of function names to actual Python functions. The schemas follow the OpenAI function calling specification, describing each tool's purpose, parameters, and when it should be used. Here's what happens when you send a message to the orchestrator: The agent calls the model with your message and the tool schemas. If the model determines a tool is needed, it returns a structured tool_calls attribute containing the function name and arguments as a proper object—not as text to be parsed. Your code executes the tool, creates a message with "role": "tool" containing the result, and sends everything back to the model. The model can then either call another tool or provide its final response. The critical insight is that the model itself controls this flow through a while loop in the base agent. Each iteration represents the model examining the current state, deciding whether it needs more information, and either proceeding with another tool call or providing its final answer. You're not manually orchestrating when tools get called; the model makes those decisions based on the conversation context. Seeing It In Action Let's walk through a complete session to see how these pieces work together. When you run python main.py, you'll see the application connect to Foundry Local and display a welcome banner: Now type a request like "Generate a 5 question quiz about photosynthesis." Watch what happens in your console: The orchestrator recognized your intent, selected the generate_new_quiz tool, and extracted the topic and number of questions from your natural language request. Behind the scenes, this tool instantiated a QuizGeneratorAgent with a focused system prompt designed specifically for creating quiz JSON. The agent used a low temperature setting to ensure consistent formatting and generated questions that were saved to the data/quizzes folder. This demonstrates the first layer of the multi-agent architecture: the orchestrator doesn't generate quizzes itself. It recognizes that this task requires specialized knowledge about quiz structure and delegates to an agent built specifically for that purpose. Now request to take the quiz by typing "Take the quiz." The orchestrator calls a different tool and Gradio server is launched. Click the link to open in a browser window displaying your quiz questions. This tool demonstrates how function calling can trigger complex interactions—it reads the quiz JSON, dynamically builds a user interface with radio buttons for each question, and handles the submission flow. After you answer the questions and click submit, the interface saves your responses to the data/responses folder and closes the Gradio server. The orchestrator reports completion: The system now has two JSON files: one containing the quiz questions with correct answers, and another containing your responses. This separation of concerns is important—the quiz generation phase doesn't need to know about response collection, and the response collection doesn't need to know how quizzes are created. Each component has a single, well-defined responsibility. Now request a review. The orchestrator calls the third tool: A new chat interface opens, and here's where the multi-agent architecture really shines. The ReviewAgent is instantiated with full context about both the quiz questions and your answers. Its system prompt includes a formatted view of each question, the correct answer, your answer, and whether you got it right. This means when the interface opens, you immediately see personalized feedback: The Multi-Agent Pattern Multi-agent architectures solve complex problems by coordinating specialized agents rather than building monolithic systems. This pattern is particularly powerful for local SLMs. A coordinator agent routes tasks to specialists, each optimized for narrow domains with focused system prompts and specific temperature settings. You can use a 1.7B model for structured data generation, a 7B model for conversations, and a 4B model for reasoning, all orchestrated by a lightweight coordinator. This is more efficient than requiring one massive model for everything. Foundry Local's native function calling makes this straightforward. The coordinator reliably invokes tools that instantiate specialists, with structured responses flowing back through proper tool messages. The model manages the coordination loop—deciding when it needs another specialist, when it has enough information, and when to provide a final answer. In our quiz application, the orchestrator routes user requests but never tries to be an expert in quiz generation, interface design, or tutoring. The QuizGeneratorAgent focuses solely on creating well-structured quiz JSON using constrained prompts and low temperature. The ReviewAgent handles open-ended educational dialogue with embedded quiz context and higher temperature for natural conversation. The tools abstract away file management, interface launching, and agent instantiation, the orchestrator just knows "this tool launches quizzes" without needing implementation details. This pattern scales effortlessly. If you wanted to add a new capability like study guides or flashcards, you could just easily create a new tool or specialists. The orchestrator gains these capabilities automatically by having the tool schemas you have defined without modifying core logic. This same pattern powers production systems with dozens of specialists handling retrieval, reasoning, execution, and monitoring, each excelling in its domain while the coordinator ensures seamless collaboration. Why This Matters The transition from text-parsing to native function calling enables a fundamentally different approach to building AI applications. With text parsing, you're constantly fighting against the unpredictability of natural language output. A model might decide to explain why it's calling a function before outputting the JSON, or it might format the JSON slightly differently than your regex expects, or it might wrap it in markdown code fences. Native function calling eliminates this entire class of problems. The model is trained to output tool calls as structured data, separate from its conversational responses. The multi-agent aspect builds on this foundation. Because function calling is reliable, you can confidently delegate to specialist agents knowing they'll integrate smoothly with the orchestrator. You can chain tool calls—the orchestrator might generate a quiz, then immediately launch the interface to take it, based on a single user request like "Create and give me a quiz about machine learning." The model handles this orchestration intelligently because the tool results flow back as structured data it can reason about. Running everything locally through Foundry Local adds another dimension of value and I am genuinely excited about this (hopefully, the phi models get this functionality soon). You can experiment freely, iterate quickly, and deploy solutions that run entirely on your infrastructure. For educational applications like our quiz system, this means students can interact with the AI tutor as much as they need without cost concerns. Getting Started With Your Own Multi-Agent System The complete code for this quiz application is available in the GitHub repository, and I encourage you to clone it and experiment. Try modifying the tool schemas to see how the orchestrator's behavior changes. Add a new specialist agent for a different task. Adjust the system prompts to see how agent personalities and capabilities shift. Think about the problems you're trying to solve. Could they benefit from having different specialists handling different aspects? A customer service system might have agents for order lookup, refund processing, and product recommendations. A research assistant might have agents for web search, document summarization, and citation formatting. A coding assistant might have agents for code generation, testing, and documentation. Start small, perhaps with two or three specialist agents for a specific domain. Watch how the orchestrator learns to route between them based on the tool descriptions you provide. You'll quickly see opportunities to add more specialists, refine the existing ones, and build increasingly sophisticated systems that leverage the unique strengths of each agent while presenting a unified, intelligent interface to your users. In the next entry, we will be deploying our quizz app which will mark the end of our journey in Foundry and SLMs these past few weeks. I hope you are as excited as I am! Thanks for reading.Don’t miss Building Agents with Microsoft Foundry and Microsoft Foundry Agent Service!
Our dynamic four-part webinar series, Agentic AI + Copilot Partner Skilling Accelerator, empowers you to harness the Microsoft AI ecosystem to unlock new revenue streams and enhance customer success. Across the four sessions, Microsoft partners can expect to learn how to apply AI tools in no-code, low-code, and pro-code scenarios to build intelligent chat and workflow solutions, extend and customize capabilities, and create advanced, custom AI functionality. Don't miss the final session in the series, Building Agents with Microsoft Foundry and Microsoft Foundry Agent Service, where you'll learn how to design and deploy intelligent agents with Microsoft Foundry and Microsoft Foundry Agent Service, including multi-agent architectures and key protocols such as A2A and MCP. The live virtual event is scheduled for December 15, 2025. Register today to reserve your spot! Be sure to follow this Partner news blog for all partner related announcements by clicking follow above!Model Mondays S2E11: Exploring Speech AI in Azure AI Foundry
1. Weekly Highlights This week’s top news in the Azure AI ecosystem included: Lakuna — Copilot Studio Agent for Product Teams: A hackathon project built with Copilot Studio and Azure AI Foundry, Lakuna analyzes your requirements and docs to surface hidden assumptions, helping teams reflect, test, and reduce bias in product planning. Azure ND H200 v5 VMs for AI: Azure Machine Learning introduced ND H200 v5 VMs, featuring NVIDIA H200 GPUs (over 1TB GPU memory per VM!) for massive models, bigger context windows, and ultra-fast throughput. Agent Factory Blog Series: The next wave of agentic AI is about extensibility: plug your agents into hundreds of APIs and services using Model Connector Protocol (MCP) for portable, reusable tool integrations. GPT-5 Tool Calling on Azure AI Foundry: GPT-5 models now support free-form tool calling—no more rigid JSON! Output SQL, Python, configs, and more in your preferred format for natural, flexible workflows. Microsoft a Leader in 2025 Gartner Magic Quadrant: Azure was again named a leader for Cloud Native Application Platforms—validating its end-to-end runway for AI, microservices, DevOps, and more. 2. Spotlight On: Azure AI Foundry Speech Playground The main segment featured a live demo of the new Azure AI Speech Playground (now part of Foundry), showing how developers can experiment with and deploy cutting-edge voice, transcription, and avatar capabilities. Key Features & Demos: Speech Recognition (Speech-to-Text): Try real-time transcription directly in the playground—recognizing natural speech, pauses, accents, and domain terms. Batch and Fast transcription options for large files and blob storage. Custom Speech: Fine-tune models for your industry, vocabulary, and noise conditions. Text to Speech (TTS): Instantly convert text into natural, expressive audio in 150+ languages with 600+ neural voices. Demo: Listen to pre-built voices, explore whispering, cheerful, angry, and more styles. Custom Neural Voice: Clone and train your own professional or personal voice (with strict Responsible AI controls). Avatars & Video Translation: Bring your apps to life with prebuilt avatars and video translation, which syncs voice-overs to speakers in multilingual videos. Voice Live API: Voice Live API (Preview) integrates all premium speech capabilities with large language models, enabling real-time, proactive voice agents and chatbots. Demo: Language learning agent with voice, avatars, and proactive engagement. One-click code export for deployment in your IDE. 3. Customer Story: Hilo Health This week’s customer spotlight featured Helo Health—a healthcare technology company using Azure AI to boost efficiency for doctors, staff, and patients. How Hilo Uses Azure AI: Document Management: Automates fax/document filing, splits multi-page faxes by patient, reduces staff effort and errors using Azure Computer Vision and Document Intelligence. Ambient Listening: Ambient clinical note transcription captures doctor-patient conversations and summarizes them for easy EHR documentation. Genie AI Contact Center: Agentic voice assistants handle patient calls, book appointments, answer billing/refill questions, escalate to humans, and assist human agents—using Azure Communication Services, Azure Functions, FastAPI (community), and Azure OpenAI. Conversational Campaigns: Outbound reminders, procedure preps, and follow-ups all handled by voice AI—freeing up human staff. Impact: Hilo reaches 16,000+ physician practices and 180,000 providers, automates millions of communications, and processes $2B+ in payments annually—demonstrating how multimodal AI transforms patient journeys from first call to post-visit care. 4. Key Takeaways Here’s what you need to know from S2E11: Speech AI is Accessible: The Azure AI Foundry Speech Playground makes experimenting with voice recognition, TTS, and avatars easy for everyone. From Playground to Production: Fine-tune, export code, and deploy speech models in your own apps with Azure Speech Service. Responsible AI Built-In: Custom Neural Voice and avatars require application and approval, ensuring ethical, secure use. Agentic AI Everywhere: Voice Live API brings real-time, multimodal voice agents to any workflow. Healthcare Example: Hilo’s use of Azure AI shows the real-world impact of speech and agentic AI, from patient intake to after-visit care. Join the Community: Keep learning and building—join the Discord and Forum. Sharda's Tips: How I Wrote This Blog I organize key moments from each episode, highlight product demos and customer stories, and use GitHub Copilot for structure. For this recap, I tested the Speech Playground myself, explored the docs, and summarized answers to common developer questions on security, dialects, and deployment. Here’s my favorite Copilot prompt this week: "Generate a technical blog post for Model Mondays S2E11 based on the transcript and episode details. Focus on Azure Speech Playground, TTS, avatars, Voice Live API, and healthcare use cases. Add practical links for developers and students!" Coming Up Next Week Next week: Observability! Learn how to monitor, evaluate, and debug your AI models and workflows using Azure and OpenAI tools. Register For The Livestream – Sep 1, 2025 Register For The AMA – Sep 5, 2025 Ask Questions & View Recaps – Discussion Forum About Model Mondays Model Mondays is your weekly Azure AI learning series: 5-Minute Highlights: Latest AI news and product updates 15-Minute Spotlight: Demos and deep dives with product teams 30-Minute AMA Fridays: Ask anything in Discord or the forum Start building: Register For Livestreams Watch Past Replays Register For AMA Recap Past AMAs Join The Community Don’t build alone! The Azure AI Developer Community is here for real-time chats, events, and support: Join the Discord Explore the Forum About Me I'm Sharda, a Gold Microsoft Learn Student Ambassador focused on cloud and AI. Find me on GitHub, Dev.to, Tech Community, and LinkedIn. In this blog series, I share takeaways from each week’s Model Mondays livestream.Model Mondays S2E9: Models for AI Agents
1. Weekly Highlights This episode kicked off with the top news and updates in the Azure AI ecosystem: GPT-5 and GPT-OSS Models Now in Azure AI Foundry: Azure AI Foundry now supports OpenAI’s GPT-5 lineup (including GPT-5, GPT-5 Mini, and GPT-5 Nano) and the new open-weight GPT-OSS models (120B, 20B). These models offer powerful reasoning, real-time agent tasks, and ultra-low latency Q&A, all with massive context windows and flexible deployment via the Model Router. Flux 1 Context Pro & Flux 1.1 Pro from Black Forest Labs: These new vision models enable in-context image generation, editing, and style transfer, now available in the Image Playground in Azure AI Foundry. Browser Automation Tool (Preview): Agents can now perform real web tasks—search, navigation, form filling, and more—via natural language, accessible through API and SDK. GitHub Copilot Agent Mode + Playwright MCP Server: Debug UIs with AI: Copilot’s agent mode now pairs with Playwright MCP Server to analyze, identify, and fix UI bugs automatically. Discord Community: Join the conversation, share your feedback, and connect with the product team and other developers. 2. Spotlight On: Azure AI Agent Service & Agent Catalog This week’s spotlight was on building and orchestrating multi-agent workflows using the Azure AI Agent Service and the new Agent Catalog. What is the Azure AI Agent Service? A managed platform for building, deploying, and scaling agentic AI solutions. It supports modular, multi-agent workflows, secure authentication, and seamless integration with Azure Logic Apps, OpenAPI tools, and more. Agent Catalog: A collection of open-source, ready-to-use agent templates and workflow samples. These include orchestrator agents, connected agents, and specialized agents for tasks like customer support, research, and more. Demo Highlights: Connected Agents: Orchestrate workflows by delegating tasks to specialized sub-agents (e.g., mortgage application, market insights). Multi-Agent Workflows: Design complex, hierarchical agent graphs with triggers, events, and handoffs (e.g., customer support with escalation to human agents). Workflow Designer: Visualize and edit agent flows, transitions, and variables in a modular, no-code interface. Integration with Azure Logic Apps: Trigger workflows from 1400+ external services and apps. 3. Customer Story: Atomic Work Atomic Work showcased how agentic AI can revolutionize enterprise service management, making employees more productive and ops teams more efficient. Problem: Traditional IT service management is slow, manual, and frustrating for both employees and ops teams. Solution: Atomic Work’s “Atom” is a universal, multimodal agent that works across channels (Teams, browser, etc.), answers L1/L2 questions, automates requests, and proactively assists users. Technical Highlights: Multimodal & Cross-Channel: Atom can guide users through web interfaces, answer questions, and automate tasks without switching tools. Data Ingestion & Context: Regularly ingests up-to-date documentation and context, ensuring accurate, current answers. Security & Integration: Built on Azure for enterprise-grade security and seamless integration with existing systems. Demo: Resetting passwords, troubleshooting VPN, requesting GitHub repo access—all handled by Atom, with proactive suggestions and context-aware actions. Atom can even walk users through complex UI tasks (like generating GitHub tokens) by “seeing” the user’s screen and providing step-by-step guidance. 4. Key Takeaways Here are the key learnings from this episode: Agentic AI is Production-Ready: Azure AI Agent Service and the Agent Catalog make it easy to build, deploy, and scale multi-agent workflows for real-world business needs. Modular, No-Code Workflow Design: The workflow designer lets you visually create and edit agent graphs, triggers, and handoffs—no code required. Open-Source & Extensible: The Agent Catalog provides open-source templates and welcomes community contributions. Real-World Impact: Solutions like Atomic Work show how agentic AI can transform IT, HR, and customer support, making organizations more efficient and employees more empowered. Community & Support: Join the Discord and Forum to connect, ask questions, and share your own agentic AI projects. Sharda's Tips: How I Wrote This Blog Writing this blog is like sharing my own learning journey with friends. I start by thinking about why the topic matters and how it can help someone new to Azure or agentic AI. I use simple language, real examples from the episode, and organize my thoughts with GitHub Copilot to make sure I cover all the important points. Here’s the prompt I gave Copilot to help me draft this blog: Generate a technical blog post for Model Mondays S2E9 based on the transcript and episode details. Focus on Azure AI Agent Service, Agent Catalog, and real-world demos. Explain the concepts for students, add a section on practical applications, and share tips for writing technical blogs. Make it clear, engaging, and useful for developers and students. After watching the video, I felt inspired to try out these tools myself. The way the speakers explained and demonstrated everything made me believe that anyone can get started, no matter their background. My goal with this blog is to help you feel the same way—curious, confident, and ready to explore what AI and Azure can do for you. If you have questions or want to share your own experience, I’d love to hear from you. Coming Up Next Week Next week: Document Processing with AI! Join us as we explore how to automate document workflows using Azure AI Foundry, with live demos and expert guests. 1️⃣ | Register For The Livestream – Aug 18, 2025 2️⃣ | Register For The AMA – Aug 22, 2025 3️⃣ | Ask Questions & View Recaps – Discussion Forum About Model Mondays Model Mondays is a weekly series designed to help you build your Azure AI Foundry Model IQ with three elements: 5-Minute Highlights – Quick news and updates about Azure AI models and tools on Monday 15-Minute Spotlight – Deep dive into a key model, protocol, or feature on Monday 30-Minute AMA on Friday – Live Q&A with subject matter experts from Monday livestream Want to get started? Register For Livestreams – every Monday at 1:30pm ET Watch Past Replays to revisit other spotlight topics Register For AMA – to join the next AMA on the schedule Recap Past AMAs – check the AMA schedule for episode specific links Join The Community Great devs don't build alone! In a fast-paced developer ecosystem, there's no time to hunt for help. That's why we have the Azure AI Developer Community. Join us today and let's journey together! Join the Discord – for real-time chats, events & learning Explore the Forum – for AMA recaps, Q&A, and Discussion! About Me I'm Sharda, a Gold Microsoft Learn Student Ambassador interested in cloud and AI. Find me on GitHub, Dev.to, Tech Community, and LinkedIn. In this blog series, I summarize my takeaways from each week's Model Mondays livestream.AI Agents in Production: From Prototype to Reality - Part 10
This blog post, the tenth and final installment in a series on AI agents, focuses on deploying AI agents to production. It covers evaluating agent performance, addressing common issues, and managing costs. The post emphasizes the importance of a robust evaluation system, providing potential solutions for performance issues, and outlining cost management strategies such as response caching, using smaller models, and implementing router models.
