Permeability upscaling should be carried out with careful attention to the nature of rock heterogeneities. While there are many large-scale features which must be taken into account, there are also important heterogeneities at the small-scale. Many sedimentary structures contain laminae at the mm-cm scale, and beds at the m-scale, which give rise to strong contrasts in permeability. We use a 2D model derived from a photo-panel of an aeolian outcrop, along with permeability measurements from a North Sea oil field, to demonstrate the effects of small-scale heterogeneity. This model is similar in size to a typical cell of a reservoir geological model. We take imaginary probe and core plug measurements from the model, average them, and compare these with the effective permeability for the model computed from a finite difference flow calculation. Although this procedure is standard practice, we show that it can lead to biased estimates of the permeabilities used in flow simulation. As an alternative we suggest using models of representative beds, and performing flow simulation to calculate effective permeabilities for both single-phase and two-phase flow.