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A toolroom is a room where tools are stored or, in a factory, a space where tools are made and repaired for use throughout the rest of the factory. In engineering and manufacturing, toolroom activity is everything related to tool-and-die facilities in contrast to production line activity.
Originally a toolroom was literally in one room, but like emergency room, the term has been figuratively extended in both substantive and adjectival senses to all such places and the methods used there, regardless of the physical space. The name was originally styled tool room or tool-room, but toolroom is now the norm in engineering and machining.
Making, repairing, and storing tools
The simplest sense of the word toolroom refers to the storage of tools. A broader use of the term includes reference to a space where tools are made, repaired, inventoried, and/or distributed for use within the factory. This extension of the latter sense reflects the development of greater systemization in manufacturing. During the 19th century, there gradually developed a division of labor whereby the people who made, repaired, kept records of, stored, and retrieved tools were not necessarily the same people who used the tools to do the manufacturing work itself. Examples of such division of labor had existed in prior centuries, but most manufacturing had been done on a craft basis, where there had been no need for the idea of a toolroom separate from the rest of the workshop.
The simplest sense above can also be conveyed by the word toolcrib (sometimes styled tool-crib or tool crib).
Tool-and-die facilities and methods
In engineering and manufacturing, a toolroom is everything related to tool-and-die facilities and methods, in contrast to the factory floor and production line activity. For people not familiar with these fields, in order to understand the specialist usage, some explanation is needed:
Within the general field of machining there is a rough but recurring division between (a) toolroom practice and (b) production practice (the making of large numbers of duplicate parts). It is the difference between manufacturing itself and the tool-and-die work that is done in support of the manufacturing. Anecdotal examples of similar distinctions can probably be found here and there throughout human history, but as a widespread part of the "fabric" of material culture, this distinction (and the terminology with which to talk about it) has evolved since the Industrial Revolution, and most especially since the advent of armory practice and later mass production.
A good, simplistic way to summarize the change in ideas is to compare the making of a certain product in different time periods. In 1750, a rifle was made in a workshop by a craftsman using hand tools, and if he needed a new tool, it is likely that he would make it himself using the same tools and methods that he would use to make his product, the rifle (smithy, files, woodcarving knives, etc.) This type of craftsmanship can still be done today, but it is expensive in terms of skilled labor time per unit of output, and therefore it implies small total output volume and high unit price. However, today the way to make rifles in large quantity with low unit price is to first do the tool-and-die work (toolroom work) (that is, make, or have someone else make, machine tools, jigs, and fixtures), and then use those specialized tools to mass-produce the rifles in an automated way that involves no toolroom methods.
Another example, instead of comparing different centuries, simply compares different methods of toolpath control that could be chosen today: If you need a certain hole location on each part for your drill bit, will you dial it carefully by hand many times (once for each part produced), or will you dial it carefully by hand only once—while making a drill jig for subsequent drilling to be quickly and effortlessly guided by?
The manufacturing of small batches has often presented the biggest challenge to this division of methods. When only a small batch of output is demanded, will one (a) produce each piece using "custom" methods (handcrafting or toolroom-style layout and machining), which drives up unit cost; or (b) maintain the capital-cost-intensive toolroom-production division, which also drives up unit costs in its own ways? In other words, is it worth one's time to make a fixture, and is it worth tying up a drill press's availability by setting it up for dedicated use with that fixture? The drill press may be needed tomorrow for a different part, with a different setup. For 100 parts, the costs of making a fixture and tying up a machine's availability are justified. For 5 parts, maybe one should just make each of the 5 using toolroom-style layout and toolpath control.
The evolution of IT and its integration into manufacturing is changing the questions and equations still further. For example, CNC and robotics have led the way to rapid prototyping and instant manufacturing, which shift the toolroom-production division by giving an up-front toolroom investment the flexibility to be quickly and easily used for any product design, with batch size irrelevant.
In large corporations there may be a very distinct division of labor between toolroom work and production machining, with different employees for each, whereas job-shop work is often a blend of toolroom work and production work, because each project requires some of both, and the same employees may "wear each hat" in sequence.