dtmbiz,
That seems like a strange thing for a company standard to require. If nobody there knows the reason for the requirement, then maybe the reason has disappeared. Maybe it wasn't even a good reason in the first place.
Can you describe the company a bit? What sort of parts and processes do you deal with?
1) Indicator tips are readily available much smaller than that. See
here for example.
2) Drawing interpretation standards generally do not specify inspection methods.
a. If you can get the part rotating about the proper axis, a wide variety of devices (including contact and non-contact) can be used to measure displacement. As chez311 mentioned, there are also methods that do not involve rotating the part.
chez311, dgallup,
I think such simple rules would only be useful in very limited circumstances. In general, there are many more factors involved.
The cylindrical surface of 10 mm diameter and 3 mm length would be a reasonable primary datum feature reference for a runout tolerance applied to the other cylindrical surface on
McMaster-Carr 92871A069, but it would be much less reasonable on
McMaster-Carr 90224A155.
pylfrm