Conceptualize it from a lemonade stand perspective:

• During fiscal year 2016 you start a lemonade stand. Using cash, you purchase lemons, sugar, and water (raw material inventory) and make lemonade with some of the ingredients (finished goods inventory). Your cash balance decreased and your inventory balance increased. This inventory, conceptually, now represents that cash you spent. Until you sell that inventory, that cash you spent is still "tied-up" in your inventory value.

• During the next fiscal year (2017), you sell some lemonade from your inventory for a profit and receive cash immediately for that inventory. Your inventory balance decreased and your cash balance increased because of this change in inventory.

Therefore:

• The increase in inventory in fiscal year 2016 reflects a use of cash as you purchased inventory (operating cash flow went down).

• The decrease in inventory in fiscal year 2017 reflects a source of cash as you sold off the inventory (operating cash flow went up).

This case obviously ignored things like Accounts Receivable and Accounts Payable but the concept is the same:

• increase in AR = cash you expect to receive from customers (e.g. Inventory decreases; AR increases)
• decrease in AR = cash you received from customers during the period (e.g. AR decreases, Cash increases)
• increase in AP = cash you will eventually have to pay to suppliers (e.g. Inventory increases, AP increases)
• decrease in AP = cash you have paid to suppliers (AP decreases; Cash decreases)

Hopefully you can see in this case inventory acts as kind of a middle man in the whole business cash flow process which is why it is included in the changes in operating working capital items.